seigniorage

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pages: 361 words: 97,787

The Curse of Cash by Kenneth S Rogoff

Andrei Shleifer, Asian financial crisis, bank run, Ben Bernanke: helicopter money, Berlin Wall, bitcoin, blockchain, Boris Johnson, Bretton Woods, business cycle, capital controls, Carmen Reinhart, cashless society, central bank independence, cryptocurrency, debt deflation, disruptive innovation, distributed ledger, Edward Snowden, Ethereum, ethereum blockchain, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial exclusion, financial intermediation, financial repression, forward guidance, frictionless, full employment, George Akerlof, German hyperinflation, illegal immigration, inflation targeting, informal economy, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, moveable type in China, New Economic Geography, offshore financial centre, oil shock, open economy, payday loans, price stability, purchasing power parity, quantitative easing, RAND corporation, RFID, savings glut, secular stagnation, seigniorage, The Great Moderation, the payments system, The Rise and Fall of American Growth, transaction costs, unbanked and underbanked, unconventional monetary instruments, underbanked, unorthodox policies, Y2K, yield curve

Note that the Swedish central bank would still be making money over most of this period using the opportunity cost definition of seigniorage. We return to the Swedish experience in Box 7.1 of chapter 7. Seigniorage revenues have been relatively modest as a share of GDP for many decades. It is true that in the high-inflation 1970s, seigniorage revenues from paper currency were notably higher for some European countries. For example, between 1974 and 1978, seigniorage revenues from currency (outside banks) ranged from 2.2% to 2.7% annually for Greece, and from 1.1% to 1.4% annually for Italy.8 But given the advent of alternative payment media, including credit and debit cards, levels this high are unlikely to be seen again in most advanced countries absent a brief spike from a large burst of unanticipated inflation. HOW MUCH WOULD SEIGNIORAGE REVENUES SHRINK? If currency were substantially phased out, the extent to which seigniorage revenues would shrink would depend in part on how much residual currency the public ends up holding after the transition.

True, these profits are likely flattered by the extremely low level of interest rates that have prevailed after the crisis,2 but even before policy interest rates collapsed to zero, the US take was still averaging 0.25% of GDP. (This calculation does not include seigniorage from electronic bank reserves, which of course should increase after paper currency is phased out. The government’s profit will depend on a variety of regulatory factors, such as the minimum level of reserves that banks will be forced to hold against deposits and what kind of interest rate the central bank pays on these.) MEASURES OF SEIGNIORAGE Importantly, there are two ways to think of seigniorage in a modern context, and both matter if one is contemplating scaling back the paper currency business. The calculations above for the euro and the dollar were based on using the simple and intuitive concept of “monetary seigniorage.”3 This concept asks to what extent the government is able to spend beyond its means each year by printing money and spending it.

At present, interest rates are very low; the average interest rate that the US Treasury paid on its marketable debt in March 2016 was just 2.03%, so an extra $1.4 trillion in debt would cost only just over $28 billion a year.4 However, if the average interest rate on marketable government debt was a more “normal” 4% (corresponding to a 2% inflation rate and 2% growth rate in real income), then opportunity cost seigniorage would be $56 billion in nominal terms (though in real terms, adjusting for inflation, the cost of the interest-bearing debt would be only 2% annually, or $28 billion). Figure 6.1 shows average revenues from printing paper currency as a percentage of GDP for a range of countries, using the monetary seigniorage approach. Switzerland and Singapore, at 0.60% and 0.62%, respectively, have average revenues similar to the Eurozone’s 0.55%. Canada and the United Kingdom are much smaller at 0.18%. China is not listed on the table, because the available dataset does not go back far enough, but in recent years, its monetary seigniorage on paper currency has averaged 0.5% of GDP a year, in the middle between the United States and Eurozone rates.5 Most countries’ seigniorage profits in recent years have almost certainly been exaggerated by the extremely low level of interest rates.


pages: 357 words: 110,017

Money: The Unauthorized Biography by Felix Martin

bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, call centre, capital asset pricing model, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, creative destruction, credit crunch, David Graeber, en.wikipedia.org, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, Hyman Minsky, inflation targeting, invention of writing, invisible hand, Irish bank strikes, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, mobile money, moral hazard, mortgage debt, new economy, Northern Rock, Occupy movement, plutocrats, Plutocrats, private military company, Republic of Letters, Richard Feynman, Robert Shiller, Robert Shiller, Scientific racism, scientific worldview, seigniorage, Silicon Valley, smart transportation, South Sea Bubble, supply-chain management, The Wealth of Nations by Adam Smith, too big to fail

But as a wily and circumspect pamphleteer, Oresme realised that to campaign for the abolition of the seigniorage altogether—by bringing the tariffed, nominal value of the coinage exactly into line with the market value of the precious metal that it contained—would never fly. He therefore recommended a more moderate course. In exchange for the benefit of using the sovereign money, the community should bear both the costs of minting and a modest seigniorage, so that the sovereign could continue to enjoy “a noble and honourable estate, as becomes princely magnificence or royal majesty.”27 Yet Oresme was aware that this proposed monetary reform begged a further question. Eliminating—or at least strictly regulating—seigniorage would certainly reduce the sovereign’s room for discretion in the management of money. But if the sovereign’s choice of the level of seigniorage was not to determine the quantity of money in circulation, what should?

Medieval sovereigns had few ways of raising revenue apart from the proceeds of their personal domains: levying direct or indirect taxes was far beyond most feudal administrative capabilities. Seigniorage was therefore a uniquely attractive and uniquely feasible source of income—and medieval sovereigns happily indulged in it. Under normal circumstances, when seigniorage was levied only on the gradual increase in the coinage supply demanded by a growing monetary economy, the revenues were relatively modest. But when the need arose, a sovereign could raise enormous sums by crying down or even demonetising altogether the current issue of the coinage and calling it in for re-minting off a debased footing. In 1299, for example, the total revenues of the French crown amounted to just under £2 million: of this, fully one half had come from the seigniorage profits of the Mint following a debasement and general recoining.20 Two generations later, the recoinage of 1349 generated nearly three-quarters of all revenues collected that year by the king.21 When such large sums could be raised, it is hardly surprising that there were no fewer than 123 debasements in France alone between 1285 and 1490.22 The remonetisation of Europe over the so-called “long thirteenth century,” from the late twelfth to the mid-fourteenth century, therefore generated two phenomena that would eventually come into conflict.

In 1299, for example, the total revenues of the French crown amounted to just under £2 million: of this, fully one half had come from the seigniorage profits of the Mint following a debasement and general recoining.20 Two generations later, the recoinage of 1349 generated nearly three-quarters of all revenues collected that year by the king.21 When such large sums could be raised, it is hardly surprising that there were no fewer than 123 debasements in France alone between 1285 and 1490.22 The remonetisation of Europe over the so-called “long thirteenth century,” from the late twelfth to the mid-fourteenth century, therefore generated two phenomena that would eventually come into conflict. The first was the emergence of a class of individuals and institutions whose wealth was held, and whose business transacted, in money—a politically powerful “money interest” beyond the sovereign’s court. The second was the growing addiction of sovereigns to the fiscal miracle of the seigniorage—a miracle which grew in proportion with the increasing use of money. The more activities were monetised, and the more people were drawn into the money economy, the larger the tax base on which seigniorage was levied. As sovereigns were to discover, this apparently magical source of fiscal financing did in fact have limits. They were not technical, however, but political. At some point, the new money interest was bound to assert itself against the sovereign’s perceived excesses. This point was reached in the mid-fourteenth century.


pages: 275 words: 84,980

Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives) by David Birch

agricultural Revolution, Airbnb, bank run, banks create money, bitcoin, blockchain, Bretton Woods, British Empire, Broken windows theory, Burning Man, business cycle, capital controls, cashless society, Clayton Christensen, clockwork universe, creative destruction, credit crunch, cross-subsidies, crowdsourcing, cryptocurrency, David Graeber, dematerialisation, Diane Coyle, disruptive innovation, distributed ledger, double entry bookkeeping, Ethereum, ethereum blockchain, facts on the ground, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, index card, informal economy, Internet of things, invention of the printing press, invention of the telegraph, invention of the telephone, invisible hand, Irish bank strikes, Isaac Newton, Jane Jacobs, Kenneth Rogoff, knowledge economy, Kuwabatake Sanjuro: assassination market, large denomination, M-Pesa, market clearing, market fundamentalism, Marshall McLuhan, Martin Wolf, mobile money, money: store of value / unit of account / medium of exchange, new economy, Northern Rock, Pingit, prediction markets, price stability, QR code, quantitative easing, railway mania, Ralph Waldo Emerson, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social graph, special drawing rights, technoutopianism, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, wage slave, Washington Consensus, wikimedia commons

Cash has a strong hand when it comes to demographics but we can still trump it if we need to provide payment systems that deliver privacy (not anonymity) so that we can provide better alternatives to cash for people who live in the margins. They deserve better than cash. Seigniorage Cashlessness would mean central banks and governments losing seigniorage revenue. This is true, and the amounts of money involved could be non-trivial unless there was offsetting through a significant increase in the demand for the other components of the monetary base – a point I will cover in more detail in Part III. For instance, required reserves that pay less than the interest rate on non-monetary financial instruments would be a source of seigniorage, and if excess reserves have some material non-pecuniary convenience yield, the central bank could even make profits on excess reserves that it held. The resources that can be appropriated through the issuance of central bank liabilities (including currency) that pay less than the market yield on otherwise-similar non-central bank liabilities can be an important source of state revenue, either for the central bank or for its beneficial owner, typically the Ministry of Finance or the Treasury, or for both.

Even at the current historically low interest rates, the income obtained is valuable. Incidentally, given some of the discussion around the use of high-value banknotes for illegal activities, it is interesting to note (see table 3) that the United States earns far more in the seigniorage on its $100 bill than other countries earn from their highest-value note because such a high proportion of US currency is held in stashes and hoards outside of the country. Seigniorage from large notes. (Source: Sands (2016).) Country Biggest banknote Seigniorage ($ billion) % GDP (basis points) UK £50 00.1 01 Eurozone €500 01.9 02 US $100 23.6 14 Japan ¥1,000 02.0 05 Switzerland SFr 1,000 00.1 02 Privacy The abolition of currency would inevitably be associated with a loss of privacy and create risks of excessive intrusion by the government (and other would-be inspectors).

Incidentally, Dyson and Hodgson go on to remark that the existence of digital fiat might well exacerbate bank runs as people, for whatever reasons, retreat from other forms of liquidity to risk-free central bank money. The existence of risk-free digital currency in the United Kingdom could plausibly lead to an inflow of funds from foreign banks into sterling digital cash, and that could in turn push up exchange rates. To recapture a portion of seigniorage. As discussed earlier, I think that the seigniorage argument is not terribly persuasive one way or the other. It is plausible, though, that the Bank of England might roughly double its seigniorage revenue if most people switch most of their spending from bank accounts to digital cash. To create alternative finance. Separating the creation of money from bank loans might mean a reduction in lending, which would have implications for the economy. There are implications for banks in the supply of credit but also implications for the potential for alternative finance to fill the gap.


pages: 363 words: 107,817

Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed by Andrew Jackson (economist), Ben Dyson (economist)

bank run, banking crisis, banks create money, Basel III, Bretton Woods, business cycle, call centre, capital controls, cashless society, central bank independence, credit crunch, David Graeber, debt deflation, double entry bookkeeping, eurozone crisis, financial exclusion, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, informal economy, information asymmetry, intangible asset, land reform, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Northern Rock, price stability, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, risk-adjusted returns, seigniorage, shareholder value, short selling, South Sea Bubble, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, unorthodox policies

This ensures that the total balance of all accounts – and therefore the total electronic money supply – cannot be increased in any way by banks. Banks would only be able to transfer money from one account to another. Reclaiming seigniorage on notes & electronic money Post-reform, the state will earn the seigniorage on the creation of electronic money. The cost of production of electronic money is practically zero, meaning that the seigniorage is effectively 100% of the face value. Strictly the only costs of the production of electronic money would be paying an official at the Bank of England to increase the balance of the Central Government Account, plus a couple of other officials (probably including the Governor) to validate the process and enter necessary passwords. This reform reclaims the seigniorage on the creation of money from commercial banks. Within the current system, the commercial banks do not earn the full face value of the money they create; instead, they gain by the interest they earn from the interest-bearing assets (i.e. loans, mortgages) that they buy with the money they create.

The interest that must be paid on this debt results in a transfer of wealth from the bottom 90% of the population (by income) to the top 10%, exacerbating inequality. In addition, any attempt by the public to pay down its debts will result in a shrinking of the money supply, usually leading to recession and making it difficult to continue reducing debt. The state currently earns a profit, known as seigniorage, from the creation of bank notes. However, because it has left the creation of electronic money in the hands of the banking sector, it is the banks that earn a form of seigniorage on 97% of the money supply. This is a significant and hidden subsidy to the banking sector, and the loss of this seigniorage requires that higher taxes are levied on the population. The instability caused by the monetary system harms the environment. The burden of servicing an inflated level of debt creates a drive for constant growth, even when that growth is harmful to the environment and has limited social benefit.

Within the existing system in the US, coins are manufactured by the US Mint, which sells the coins at face value to the Federal Reserves, who in turn sells them at face value to commercial banks. The profit on the creation of coins,1 which is the difference between the cost of manufacture and the face value, is known as seigniorage, as described in the US Mint’s annual report: “Seigniorage equals the face value of newly minted coins less the cost of production (which includes the cost of metal, manufacturing, and transportation). Seigniorage adds to the government’s cash balance, but unlike the payment of taxes or other receipts, it does not involve a transfer of financial assets from the public. Instead, it arises from the exercise of the government’s sovereign power to create money and the public’s desire to hold financial assets in the form of coins.”


Crisis and Dollarization in Ecuador: Stability, Growth, and Social Equity by Paul Ely Beckerman, Andrés Solimano

banking crisis, banks create money, barriers to entry, business cycle, capital controls, Carmen Reinhart, carried interest, central bank independence, centre right, clean water, currency peg, declining real wages, disintermediation, financial intermediation, fixed income, floating exchange rates, Gini coefficient, income inequality, income per capita, labor-force participation, land reform, London Interbank Offered Rate, Mexican peso crisis / tequila crisis, microcredit, money: store of value / unit of account / medium of exchange, offshore financial centre, old-boy network, open economy, pension reform, price stability, rent-seeking, school vouchers, seigniorage, trade liberalization, women in the workforce

Of course, the degree of integration in goods, capital, and labor markets in the EU is far higher than in the CAN (or MERCOSUR).13 Still, the development of practices of mutual consultation in monetary and exchange-rate matters among member countries is worth pursuing. Seigniorage and Lender of Last Resort A classic argument in the case for national money14 is that, by giving up the use of national money and adopting a foreign currency, a country loses a source of revenue, given by the difference between the real command of resources that the creation of money entails and the low cost of producing (paper) money. This difference is called seigniorage. For ranges of low to moderate inflation and with “normal” demand for money, seigniorage can 10 CRISIS AND DOLLARIZATION IN ECUADOR represent several points of GDP. By adopting the U.S. dollar as its national currency, Ecuador loses this source of revenue and transfers seigniorage to the Federal Reserve Bank of the United States. However, the quantitative importance of the loss of seigniorage in Ecuador is bound to be modest, as the economy was already highly demonetized and de-facto dollarized before the U.S. dollar was officially adopted.

U.S. interest rates and U.S. business cycles explain half the variance of real exchange-rate changes and accumulation of international reserves (Calvo and Reinhart 2000). It seems reasonable enough to conclude that U.S. economic influence operates under any exchange-rate regime. Another presumable disadvantage of dollarization is the loss of seigniorage. Having a local currency allows the central bank to secure seigniorage gains, whereas full dollarization leaves the seigniorage gains in the hands of the U.S. Federal Reserve.2 The appropriate comparison, however, would be not with an alternative theoretical system where the central bank holds no international reserves, but with a more realistic system in which the central bank maintains a large international-reserve stock. As noted earlier, weak credibility and flexible exchange-rate arrangements in developing economies oblige their central banks to 86 CRISIS AND DOLLARIZATION IN ECUADOR maintain large international-reserve balances.

Calcagno, Alfredo, Sandra Manuelito, and Daniel Titelman. 2001. “Dollarization in Ecuador: A Parallel with Argentine Convertibility.” Economic Commission for Latin America and the Caribbean. Processed. Calvo, Guillermo. 1999. “On Dollarization.” University of Maryland. Processed. Eichengreen, Barry. 2002. “When to Dollarize.” Journal of Money, Credit and Banking 34(1):1–24. Fischer, Stanley. 1982. “Seigniorage and the Case for National Money.” Journal of Political Economy 90(April):295–313. ———. 1993. “Seigniorage and Official Dollarization.” In Nissan Liviatan, ed., Proceedings of a Conference on Currency Substitution and Currency Boards, pp. 6–10. World Bank Discussion Paper 207. World Bank, Washington, D.C. ———. 2001a. “Exchange Rate Regimes: Is the Bi-Polar View Correct?” Distinguished Lecture on Economics in Government, American Economic Association and Society of Government Economists. ———. 2001b.


pages: 275 words: 77,017

The End of Money: Counterfeiters, Preachers, Techies, Dreamers--And the Coming Cashless Society by David Wolman

addicted to oil, Bay Area Rapid Transit, Berlin Wall, Bernie Madoff, bitcoin, Bretton Woods, carbon footprint, cashless society, central bank independence, collateralized debt obligation, corporate social responsibility, credit crunch, cross-subsidies, Diane Coyle, fiat currency, financial innovation, floating exchange rates, German hyperinflation, greed is good, Isaac Newton, Kickstarter, M-Pesa, Mahatma Gandhi, mental accounting, mobile money, money: store of value / unit of account / medium of exchange, offshore financial centre, P = NP, Peter Thiel, place-making, placebo effect, Ponzi scheme, Ronald Reagan, seigniorage, Silicon Valley, special drawing rights, Steven Levy, the payments system, transaction costs, WikiLeaks

Mint, for example, has already earned the Federal Reserve an estimated $4.6 billion in seigniorage.24 In total, the Fed will have earned about $70 billion in 2010 and 2011 by way of providing you, me, and the rest of the greenback-using world with physical money.25 (The Fed also earns seigniorage when it issues electronic money, but that’s a more convoluted form of earning over time, compared with straight-shot profit, which is like any business that sells its product for more than it costs to produce. Then again, having a legal monopoly makes this very much unlike other businesses.) Conspiracy theorists in the United States tend to obsess over seigniorage and the Federal Reserve’s semi-private nature, claiming that the Fed is a malevolent secret society—think Knights Templar meets the Council on Foreign Relations. These evildoers, say the theorists, use their power and wealth to manipulate world governments to their benefit. The more boring fate of seigniorage is that the Fed transfers this profit to the Treasury at year’s end.

The key is something called seigniorage. The opaqueness of the term itself bespeaks the “secret incantation” of central banks and “transactions so powerful and frightening they seem[ed] to lie beyond common understanding,” as William Greider put it in Secrets of the Temple: How the Federal Reserve Runs the Country.23 All it is, though, is profit pocketed by central banks and their governments, earned for providing us with currency with which to go about our business. Because the cost of making a coin or banknote is (usually) less than the face value of the object itself, the supplier of the money gets to keep the difference. The new state quarters series issued by the U.S. Mint, for example, has already earned the Federal Reserve an estimated $4.6 billion in seigniorage.24 In total, the Fed will have earned about $70 billion in 2010 and 2011 by way of providing you, me, and the rest of the greenback-using world with physical money.25 (The Fed also earns seigniorage when it issues electronic money, but that’s a more convoluted form of earning over time, compared with straight-shot profit, which is like any business that sells its product for more than it costs to produce.

But because Birch doesn’t want to embarrass the old lady by showing her what she’s doing wrong, he charitably chooses to pay for my chocolate souvenirs with his British Airways American Express card. Leaving the bank, we walk to the Underground station at Canterbury Lane. “Maybe the problem is that they’re not doing the sums properly across government agencies,” says Birch. While national treasuries receive revenue from seigniorage, other branches of government—from the IRS and FBI, to the Department of Justice and Drug Enforcement Agency—are paying up big for cash’s mélange of downstream consequences. Birch asks a fair question: don’t those respective budgets eventually impact how things are looking over at the Treasury? One shorter-term proposal floated by Birch and others for taking a bite out of cash-related crime—not to mention national debts—is to demonetize higher-value banknotes, namely the $100, €500, €200, and €100.


pages: 444 words: 151,136

Endless Money: The Moral Hazards of Socialism by William Baker, Addison Wiggin

Andy Kessler, asset allocation, backtesting, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, Branko Milanovic, break the buck, Bretton Woods, BRICs, business climate, business cycle, capital asset pricing model, commoditize, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, cuban missile crisis, currency manipulation / currency intervention, debt deflation, Elliott wave, en.wikipedia.org, Fall of the Berlin Wall, feminist movement, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, housing crisis, income inequality, index fund, inflation targeting, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, land reform, liquidity trap, Long Term Capital Management, McMansion, mega-rich, money market fund, moral hazard, mortgage tax deduction, naked short selling, negative equity, offshore financial centre, Ponzi scheme, price stability, pushing on a string, quantitative easing, RAND corporation, rent control, reserve currency, riskless arbitrage, Ronald Reagan, school vouchers, seigniorage, short selling, Silicon Valley, six sigma, statistical arbitrage, statistical model, Steve Jobs, stocks for the long run, The Great Moderation, the scientific method, time value of money, too big to fail, upwardly mobile, War on Poverty, Yogi Berra, young professional

Taxes would not be raised for at least another century, but this emperor began the practice of seigniorage, wherein the silver content of coinage was reduced. Nero clipped coins by 10 percent. At first this produced immediate wealth for the emperor, but it began to backfire, and a long line of successors would blame rising prices upon the behavior of businessmen, not understanding the fundamental role of money. Importation of wheat for the masses contributed to a trade imbalance, and the consumption of luxury goods by the aristocracy led to the outflow of gold to the east. Central planning became difficult, with a geographic reach stretched thinly by military conquest and the populace having lost incentives to improve crafts or agricultural production. Trajan (98 ad–117 ad) upped seigniorage to 15 percent, Marcus Aurelius (161 ad–180 ad) made it 25 percent, and Septimus Severus (193 ad–201 ad) debased by 50 percent.

The American embrace of fiat currency benefitted colonial governments, since its first usage was to finance public obligations, after which it would be circulated. It added wealth to the colonies and undermined the monetary base of Britain, essentially making the colonists legal counterfeiters. It also underscores that government has two means of financing: one is to tithe the income of its citizenry; the other is to tax the value of circulating medium simply by printing money. The latter benefit to government is known as “seigniorage,” and it accrues directly to the holder of the press. Perhaps on account of living through such an extreme episode by necessity, or perhaps from its repeat in France during that country’s revolution (1789-1797), blatant issuance of paper money came to an end. The Founding Fathers expressly wrote into the U.S. Constitution that the nation’s currency would be gold and silver coins, fixed at a ratio of 15-to-1 such that a dollar would equal 371.25 grains of silver or 24.75 grains of gold.

When social programs soak up central bank accommodation of Treasury issuance through monetary expansion, savers see their wealth diminished in relative terms, as if a tax had been placed upon them. In such an arrangement socialism flourishes, because there is no perceived cost to those who hold wealth. In actuality, the difference between the low single digit inflation of modern fiat currencies and the natural deflation that would accrue from productivity gains, and from the integration of billions of lowwage laborers into the world economy represents seigniorage transferred to the political beneficiaries of socialized credit. It is a staggeringly large number annually. Taken to the extreme, bank reserve requirements could be set near zero to permit infinite expansion of the money stock. The panic of 2008 may have this very characteristic. The experience of the early 19th century provides some evidence of Rothbard’s observation of how strong the profit opportunity was when the United States first witnessed fractional reserve banking.


pages: 665 words: 146,542

Money: 5,000 Years of Debt and Power by Michel Aglietta

bank run, banking crisis, Basel III, Berlin Wall, bitcoin, blockchain, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, David Graeber, debt deflation, dematerialisation, Deng Xiaoping, double entry bookkeeping, energy transition, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, forward guidance, Francis Fukuyama: the end of history, full employment, German hyperinflation, income inequality, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, joint-stock company, Kenneth Arrow, Kickstarter, liquidity trap, margin call, means of production, money market fund, moral hazard, Nash equilibrium, Network effects, Northern Rock, oil shock, planetary scale, plutocrats, Plutocrats, price stability, purchasing power parity, quantitative easing, race to the bottom, reserve currency, secular stagnation, seigniorage, shareholder value, special drawing rights, special economic zone, stochastic process, the payments system, the scientific method, too big to fail, trade route, transaction costs, transcontinental railway, Washington Consensus

In a credit system, it is the banks that create money. But whether money is metallic or scriptural, it is fiduciary. It is always and everywhere a reciprocal debt between society as a whole – as represented by the payment system – and its members. Table 1.2 Making metal into money Creation of metal money without seigniorage Metal holder Mint Unminted metal Assets in metal Minted money −100 + 100 +100 Minted money +100 Creation of metal money with seigniorage Metal holder Mint Unminted metal Assets in metal Minted money −100 + 100 +100 Minted money Seigniorage +95 +5 Tax: +5 What determines individuals’ capacity to act on the market is therefore the amount of capital used as collateral and (or) its liquidity (in the case of a negotiable financial security). For an individual to be able to reimburse a sum of money m in the oncoming period, she must have a cash-exchangeable wealth m/(1+i), where i is the interest rate at which this sum can be borrowed from a bank.

The monopoly on issuing money reinforced the kingdom’s collective identity and centralised its capacity to acquire resources to finance the mercenaries called on to defend the kingdom, thanks to seigniorage. As we described in our accounting analysis in the first chapter (Table 1.2), the minting workshop collected a fiscal debt for state accounts among those buying money in exchange for metal. The state became the counterparty of all those who held money, on whom it imposed a tax levy. Beyond those who sought metal, the other contributors were merchant intermediaries of foreign trade. When they received money in crude metals or foreign monies, they had to convert it into legal tender in order to spend it in the kingdom itself. Seigniorage thus represented the primacy of legal tender over crude metal within the political space where it was established. DIGRESSION ON MINTING IN THE ACHAEMENID PERSIAN EMPIRE In 546 BC, Croesus was defeated by the Persian emperor Cyrus.

The systematic difference in the price of exchange by notes – the difference that bankers exploited – was based on the seigniorage included in the legal tender of coins. The legal tender of a coin in the country in which it was minted was always higher than the trade value of the metal that it contained. Conversely, in outside territories, foreign coins circulated at their trade value. Thus, each coin was overvalued relative to the others in the territory in which it was minted. If we call the rate calculated on the basis of the coins’ legal tender the ‘par of exchange’, then the bankers’ systematic profit came from the systematic difference between the price of exchange by notes and the par of exchange – a difference owing to the distortion produced by seigniorage (see Box 3.1). Box 3.1 The structural enrichment of market bankers Let’s consider the two great trade hubs of Lyon and Genoa.


pages: 492 words: 118,882

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

In light of these practices, the obvious question is, why are central banks still printing cash even though they are aware of the benefits it provides to malicious and ill-intentioned members of society? The answer in a word is Seigniorage. Seigniorage is the difference between the value of money and the cost to produce it. When commodity money was used, Seigniorage was the difference between the face value of the minted coins and the actual market value of the metal they contained. If the Seigniorage was positive, then the government made a revenue that was essentially a profit. However, with fiat money, the same formula does not apply. With a fiat money system, Seigniorage revenue is three-fold. First, revenue is obtained from the physical production of money. While it costs 10.6 cents to print a $50 note,10 the actual value of the See the cost of printing money at: http://www.federalreserve.gov/faqs/currency_12771.htm 10 122 Chapter 3 ■ Innovating Capitalism note is $50.

Second, when commercial banks require cash, they purchase it from the central bank via the reserves that they need to hold at the central bank. This is turn is a source of revenue to the central bank and the Seigniorage is earned from the reduction in the central bank’s interest costs, as interest is payable on reserves but not on cash. Third, commercial banks can also purchase cash by entering a repo agreement with the central bank. In exchange for cash, the central bank buys securities from the commercial bank. But the commercial bank has to buy back the securities at a later date (hence a repo agreement). Seigniorage is thus made by the central bank during the repurchase phase of the repo agreement (Dyson and Hodgson, 2016). As governments have complete monopoly over the printing of money, they enjoy considerable profits from its production.

They found strong evidence that supported Fisher’s claims and found that monetary policy based on debt-free government-issued money would reduce debt levels across the economy and ensure smoother business cycles. Some other points worth mentioning include: • The Chicago Plan creates longer-term output gains: Lower debt levels in the economy cause investors to demand lower real interest rates. This makes borrowing money less risky and can help in spurring investment. As the government is also capable of gaining a higher Seigniorage income, it can offset distortionary tax rates that are paid by citizens, giving them more income to save or invest. Finally, as money can now be created debt-free, there is a reduced need to monitor the creation of those loans whose primary function was to create an adequate money supply. This in turn leads to lower credit monitoring costs. --------------------------------------------------------------------------------------*(It should be remembered in viewing this plan that money is not looked at as a debt instrument issued by the government (as is currently done in the fractional banking system).


pages: 457 words: 128,838

The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order by Paul Vigna, Michael J. Casey

Airbnb, altcoin, bank run, banking crisis, bitcoin, blockchain, Bretton Woods, buy and hold, California gold rush, capital controls, carbon footprint, clean water, collaborative economy, collapse of Lehman Brothers, Columbine, Credit Default Swap, cryptocurrency, David Graeber, disintermediation, Edward Snowden, Elon Musk, Ethereum, ethereum blockchain, fiat currency, financial innovation, Firefox, Flash crash, Fractional reserve banking, hacker house, Hernando de Soto, high net worth, informal economy, intangible asset, Internet of things, inventory management, Joi Ito, Julian Assange, Kickstarter, Kuwabatake Sanjuro: assassination market, litecoin, Long Term Capital Management, Lyft, M-Pesa, Marc Andreessen, Mark Zuckerberg, McMansion, means of production, Menlo Park, mobile money, money: store of value / unit of account / medium of exchange, Nelson Mandela, Network effects, new economy, new new economy, Nixon shock, offshore financial centre, payday loans, Pearl River Delta, peer-to-peer, peer-to-peer lending, pets.com, Ponzi scheme, prediction markets, price stability, profit motive, QR code, RAND corporation, regulatory arbitrage, rent-seeking, reserve currency, Robert Shiller, Robert Shiller, Ross Ulbricht, Satoshi Nakamoto, seigniorage, shareholder value, sharing economy, short selling, Silicon Valley, Silicon Valley startup, Skype, smart contracts, special drawing rights, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, supply-chain management, Ted Nelson, The Great Moderation, the market place, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, Turing complete, Tyler Cowen: Great Stagnation, Uber and Lyft, uber lyft, underbanked, WikiLeaks, Y Combinator, Y2K, zero-sum game, Zimmermann PGP

Countless monarchs after King Alyattes used similarly dramatic symbols to put their stamp on coinage. It gave the coin authenticity but also functioned as a kind of royal branding, an advertisement of the omnipresence of the realm. We are reminded that money and power are inseparable. The sovereign’s capacity to issue money afforded one specific benefit: the creation of seigniorage, the ability to profit directly from the issuance of currency. These days, seigniorage arises because of the interest-free loan that a government obtains by printing money on comparatively worthless pieces of paper. But when currencies were associated with particular weights of precious metals, monarchs exploited this power through more overt methods. Many would “clip” gold or silver coins to melt down and redeem the value of the shavings.

The ten-minute gap is somewhat arbitrary, but by choosing an interval and programming the software to stick to that fixed schedule, he could arrange the currency-issuance schedule to be consistent over a 130-year period. In monetary-theory terms, the payout is seigniorage, the profit that a currency issuer—be it a sovereign, a monetary authority, or in this case a winning bitcoin miner—derives from the privilege of minting the community’s money. The corollary is, this cost is borne by the rest of the community, since fresh supply depletes the market value and purchasing power of the existing currency. Seigniorage is unavoidable; someone has to be the first to own newly issued currency. The question is how to make it fair. Some cryptocurrency designers have created nonprofit foundations and charged them with distributing the coins based on certain criteria—to eligible charities, for example.

Some designers have given fixed allotments to people formally registered as belonging to a particular group, such as a national registry. But that creates the potential for fraud as people can set up more than one wallet per person, hiding behind the system’s anonymity, and get higher allotments for themselves. Some have created the coins and sold portions of them to the public—garnering the seigniorage for themselves, much like a government.* Often this strategy requires some elaborate maneuvers to keep the faith with the community, occasionally employing a “proof of burn” strategy, where the founders periodically transfer some of their coin holdings to a verifiably unusable wallet to maintain scarcity and bolster the value of everyone else’s coins. How Transactions Are Confirmed on the Blockchain (Courtesy of Michael J.


pages: 209 words: 53,236

The Scandal of Money by George Gilder

Affordable Care Act / Obamacare, bank run, Bernie Sanders, bitcoin, blockchain, borderless world, Bretton Woods, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, Claude Shannon: information theory, Clayton Christensen, cloud computing, corporate governance, cryptocurrency, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, Deng Xiaoping, disintermediation, Donald Trump, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, glass ceiling, Home mortgage interest deduction, index fund, indoor plumbing, industrial robot, inflation targeting, informal economy, Innovator's Dilemma, Internet of things, invisible hand, Isaac Newton, Jeff Bezos, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, Law of Accelerating Returns, Marc Andreessen, Mark Zuckerberg, Menlo Park, Metcalfe’s law, money: store of value / unit of account / medium of exchange, mortgage tax deduction, obamacare, Paul Samuelson, Peter Thiel, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, reserve currency, road to serfdom, Robert Gordon, Robert Metcalfe, Ronald Reagan, Sand Hill Road, Satoshi Nakamoto, Search for Extraterrestrial Intelligence, secular stagnation, seigniorage, Silicon Valley, smart grid, South China Sea, special drawing rights, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, time value of money, too big to fail, transaction costs, trickle-down economics, Turing machine, winner-take-all economy, yield curve, zero-sum game

Governments pushed real estate as a haven from dollar depreciation, turning the U.S. economy from an industrial powerhouse into a financial and consumption casino. With no global standard of value, currency trading became the world’s largest and most useless enterprise, accounting for more than a quadrillion dollars in transactions every year by 2015—a third of the GDP every day. It gobbled up the profits of what is called “seigniorage,” the gains from issuing money. These gains represent the difference between the coin’s cost of production and its value. The central banks and government Treasuries win most of these gains. But these quantitative changes also lavishly benefit any early borrowers or lenders of the government money who can act before related price changes propagate through the economy. But all the currency trading failed in its one crucial role: it failed to find values even remotely as stable as the economic activity they measured.

That is the creed of monetarism, suggesting that even in a fully free-market economy the central bank is the one institution that must maintain top-down control. Since every currency has a central bank, the prevailing monetarism enables a different monetary policy in each nation or region. Separating national economies, this system favors currencies floating against one another, with their values reconciled by a global market of currency exchange. Thus, a global currency is “minted” by currency traders in a strange new form of seigniorage. Under the prevailing theory, money becomes a self-referential system ultimately controlled by each sovereign that issues currency. Sovereign moneys compete with one another in markets around the globe. By assuming that control over the money supply gives the government power to provide jobs and lower prices in each country, monetarism, like Keynesianism, not only invites but virtually requires a government monopoly on money.

Now at $5.3 trillion per day, currency trading dwarfs all the globe’s stock markets and is seventy-three times greater than all trade in goods and services.9 To deal with the floods of monetary change, banks spend half a trillion dollars on information technology, decisively leading all other sectors in computer outlays.10 The work of maintaining the measuring stick now costs 20 percent more in computer equipment than all the world’s information technology for manufacturing new goods. Moreover, that work yields a volatile but steadily rising proportion of all banking profits. In other words, our current floating-rate system fails to cancel capital, technology, and learning. Instead capital, technology, entrepreneurial ingenuity, and government power together largely determine the earnings in the financial system. In a form of private seigniorage—the profits from creating money—the largest traders capture hundreds of billions of dollars or dollar equivalents every year from setting the measuring stick. Therefore, it is not a measuring stick at all but a speculative ocean of currencies that banks surf for profits. In what looks uncomfortably like a protection racket, the banks extract these profits as a kind of volatility tax on the companies that use them to hedge currencies.


pages: 386

Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775-1821 by George Anthony Selgin

British Empire, correlation coefficient, George Gilder, invention of the steam engine, Isaac Newton, James Watt: steam engine, large denomination, lone genius, profit motive, RAND corporation, school choice, seigniorage, The Wealth of Nations by Adam Smith

Otherwise, the mint price will fall short of the mint equivalent by the charge for coinage, which may include a profit to the mint or government. That profit is known as seigniorage, after the lords, or seigneurs, who exercised the right of coinage in medieval France. During the seventeenth and eighteenth centuries, the mint price (and mint equivalent) ofa troy pound (twelve ounces, each of 480 grains) of silver was sixtytwo shillings. As long as Great Britain's standard money units were understood as silver units (as they were for much of this period), for the Royal Mint to have made more than sixty-two shilling coins from one troy pound of silver would have been tantamount to redefining the pound sterling, the shilling, and the penny. Under bimetallism, the government allows free coinage, usually with little or no seigniorage, of two metals, assigning a mint equivalent and corresponding mint price to each.

SOlue procedures for 1uill1icking old coin, including frying counterfeits in brinlstone to give thell1 an appropriate patina, added to the costs of counterfeiting, but such costs were presumably slTIall cOlllpared to savings on copper and die-sinking charges. STEAM, HOT AIR, AND SMALL CHANGE 10 287 -r------------------------------------...., 8 6 4 2 o .:;.~'o ~.:;.'v;)~.:;.<)~.:;.'v;)~.:;.<~ .:;.'v;)'+:>':;''o~ ':;''o'V':;''o~.:;.'0'0':;''o'+:>.:;.~~.:;.'\~.:;.~~.:;.~'o.:;.~'+:>.:;.,+:>~ .:;.,+:>'V.:;.,+:>~.:;.,+:>'0.:;.,+:>'+:>.:;.O;~ .:;.d)l;.:;.O;~.:;.~'o " -2 -4 -'- L_-..L Fig. 4. Implicit seigniorage rate on regal copper coin, 1749-1816. Seigniorage is calculated by subtracting the sum of the price of sheet copper (drawn from Grenfell 1814, app.) and a constant average coin. The situation with silver was no different. Rogers Ruding wrote at the end of the century (1799,35-36): [T] he counterfeiter has only to procure a die (the sinking of which is within the ability of any workman in steel), with a faint outline of part of a bust upon it, and with a reverse totally plain: With this mean instrument he may secure a profit of nearly thirty per cent. by coining shillings, even of standard silver.

Local confidence that an IOU could and would be honored meant that coins could generally be accepted and used in exchange. The better the credit of the issuer, the wider the circulation, and the less need for intrinsic value of the money object. Selgin, I would guess, sees the almost universal provision of currency by the state as an unnecessary and undesirable consequence of coercion to protect a profitable monopoly (seigniorage). In contrast, I see the state's role in this respect as the almost inevitable consequence of the fact that the state is-admittedly in large part because of its coercive and tax powers-the most creditworthy institution in the country. Whichever of us may be correct, it makes no difference to the fact that this is an excellent and fascinating book. CHARLES GOODHART Norman Sosnow Professor ofBanking and Finance London School ofEconomics Preface Economists, everyone knows, distrust state-sanctioned monopolies and are inclined to think that private firms can do a better job supplying goods and services than governments are capable of doing.


pages: 363 words: 92,422

A Fine Mess by T. R. Reid

Affordable Care Act / Obamacare, Bernie Sanders, Capital in the Twenty-First Century by Thomas Piketty, carried interest, centre right, clean water, Donald Trump, Double Irish / Dutch Sandwich, game design, Gini coefficient, High speed trading, Home mortgage interest deduction, Honoré de Balzac, income inequality, industrial robot, land value tax, loss aversion, mortgage tax deduction, obamacare, Occupy movement, offshore financial centre, oil shock, plutocrats, Plutocrats, race to the bottom, Ronald Reagan, seigniorage, Silicon Valley, Skype, Snapchat, sovereign wealth fund, Tesla Model S, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, We are the 99%, WikiLeaks

The problem here is inflation, which increases sharply as more and more money floods into the marketplace, with severe repercussions. A less damaging way to make money from printing money is the concept of “seigniorage,” which is the difference between the face value of a bill and the cost of printing it. The U.S. government spends about six cents for the paper and ink used to make a $10 bill, which means a seigniorage gain of $9.94 when a new $10 bill is put into circulation. The U.S. Mint says it earns something over $100 million each year this way. As long as a government doesn’t print so much money that it triggers inflation, seigniorage can be a small but steady contributor to revenues. Governments can also bring in money by borrowing. When the U.S. government spends more than it takes in—in fiscal 2016, we ran a deficit of $590 billion—it borrows money from banks, investors, and foreign governments to make up the difference.

., 10, 17, 19, 37, 96, 173, 193, 247 world’s highest, 18, 41, 111 See also value-added tax (VAT) Sanders, Bernie, 132, 138, 158, 172, 180, 184–85, 253 Sarkozy, Nicolas, 127, 133 savings, 9, 33, 36, 116, 128–29, 173–74, 181–82, 233, 241, 255 Scandinavia, 105 schools, 24–25, 29, 63, 117, 175, 237, 239 Schuchat, Frank, 139 Schwarzman, Stephen, 119, 138 Scott, Graham, 11, 60–63, 65 securities, 23, 84, 123, 160, 181–85, 255 Securities and Exchange Commission, 163, 181 seigniorage gain, 33 self-employed, the, 63, 223 Seligman, Edwin R. A., 45, 135 Serbia, 106, 110 single-rate tax. See flat-rate income tax Single Tax (Georgist), 173–76 sin tax, 37–39 Skadden, Arps firm, 154 Slemrod, Joel, 43, 238 Slovakia, 10, 15, 23, 106–13 Slovenia, 15, 94 slumps, economic, 37, 41–42, 51, 101, 103, 107, 113, 172, 233, 235, 238 Smith, Adam, 37–38, 44–45 Social Security, 103, 126 in flat-rate tax countries, 110–11, 114 in other nations, 133, 192, 221 in U.S., 17, 41–42, 63, 75, 79, 165, 173–74, 186, 234, 246 soda pop tax, 10, 38–39, 176–80, 185 South Africa, 240 South Korea, 14–15, 17, 19, 21, 24, 36, 77, 146, 181 Soviet Union, 94–95, 101–6, 109–11, 220.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, blockchain, borderless world, Bretton Woods, BRICs, business cycle, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, eurozone crisis, fiat currency, financial exclusion, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kickstarter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liberal capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, negative equity, new economy, Nixon shock, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer, peer-to-peer lending, Ponzi scheme, post scarcity, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Veblen good, Wave and Pay, Westphalian system, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

Those forms of payments that seem to liberate us from the clutches of banks and large corporations base their attractiveness on an underlying sense that they are enabling us to escape from the old vested interests that were present—somewhere in the background—whenever we used money. The classic expression of such interests, of course, is seigniorage, which used to be the difference between the value of money and what it cost to produce. Seigniorage was classically seen as a tax—economists called it an inflation tax—because it was usually the state (via its central bank) that produced the notes and coins in question. Today, however, the “tax” on the everyday use of money is paid not to the state but to the providers of the payment networks. These are the very providers—PayPal, Square, Google, and M-Pesa—whose primary attraction lies in the fact that they are not government. This phenomenon is the new, private, seigniorage.50 The expansion of mobile money has proceeded hand in hand with the development of increasingly sophisticated ways for private corporations to “mine value in the act of payment” (Maurer 2011: 10).

This goal may not be as ambitious a concept as Hardt and Negri’s vision of the financial commons (see Chapter 6), but it is arguably more realistic and achievable. The increasingly private character of payment systems militates against this situation and explicitly encourages a form of profiteering from money’s mere use, which is arguably no more logical or ethically defensible than usury. Since the 2007–8 crisis, most public debate about the nature and purpose of the monetary and financial system has been preoccupied with debt. But the “new seigniorage” has all of the potential to be an equally corrosive feature of the world’s monetary landscape. The second key issue is connected to the first. It concerns the relationship between the two main payment networks I have been discussing here. At present, the two road systems meet in various ways, or in many instances not at all. Local currencies such as London’s Brixton Pound are only exchangeable in specific places in a delimited area.

Bearers of local currency vouchers do not benefit from the same level of consumer protection as banknotes issued by either the Bank of England or the authorised commercial issuing banks in Scotland and Northern Ireland” (Naqvi and Southgate 2013: 1). 47 See http://www.prisonplanet.com/articles/april2004/040704bajabeachclub.htm and http://edition.cnn.com/2004/WORLD/europe/06/09/spain.club/index.html. 48 M is for mobile; pesa is Swahili for money. 49 https://squareup.com/wallet. 50 Although it is not exactly seigniorage, the term goes some way toward capturing the idea that this is essentially a fee that is charged for the mere use of money, like the opposite of demurrage. As Maurer points out, “We may need a better vocabulary for fees, rents, taxes, tribute—not everything, as the Islamic bankers remind us, is usury” (Maurer 2011: 11). 51 Payment service providers wield significant power in other ways, too, as exemplified by the involvement of Bank of America, VISA, MasterCard, PayPal and Western Union in the WikiLeaks case.


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

"Robert Solow", 3D printing, bank run, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, market bubble, market clearing, means of production, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

Currencies had to be exchanged for trade purposes, of course, but also wealth needed to be guarded against erosion due to loss of value because of inflation and depreciation. Investors wanted to be able to move their assets from one currency to another quickly and cheaply. There were rich pickings here for the financial markets. Once fixed exchange rates were replaced by flexible exchange rates, the dollar became the sole anchor for the international monetary system. This gave enormous seigniorage privilege to the US. Every country wanted to hold dollars as reserves since dollars were universally acceptable in trade, and indeed all prices were quoted in dollar terms. This allowed the US to issue more dollars relative to its income than would be the case for other economies. This was the privilege that European nations could not enjoy and complained about. But John Connally, the US Treasury Secretary under Nixon, famously summed up the US’s response: “The dollar is our currency and your problem.”

(i), (ii) Rothschilds (i) Roubini, Nouriel (i) Royal Charter, grants of monopoly (i) rules of competition (i) Russia (i), (ii) Russian revolution (i), (ii) saltwater economists (i), (ii) Samuelson, Paul (i), (ii), (iii), (iv) “Analytical Aspects of an Anti–Inflation Policy” (with Robert Solow) (i) Say, Jean-Baptiste (i) Say’s Law (i), (ii) scarcity value (i) Scholes, Myron (i), (ii), (iii) Schumpeter, Joseph (i), (ii), (iii), (iv) The Theory of Economic Development (i) Schwartz, Anna, A Monetary History of the United States (with Milton Friedman) (i) Scottish Enlightenment (i) Second International (i) secular stagnation (i) securitization of mortgages (i) seigniorage privilege (i) self-interest (i) self-organizing society (i) self-sufficiency (i) service sector (i), (ii) servomechanism (i) shadow banking structure (i) shares (i) Sherman Act (i) Shiller, Robert (i), (ii) shocks (i), (ii), (iii) contagion (i) debt crises (i) political (i) see also oil shock short cycles (i) short-run rate of interest (i) Silesian weavers (i) single global currency (i) skills, types needed (i), (ii) slack (i) slavery, abolition of (i) Slutsky, Eugen (i), (ii), (iii) Smith, Adam (i), (ii), (iii), (iv), (v) the founding of the political economy (i) An Inquiry into the Nature and Causes of the Wealth of Nations (i), (ii) The Theory of Moral Sentiments (i), (ii) social science, founding (i) Socialist International (i) society regulation (i) self-organizing (i) Solow, Robert (i), (ii), (iii) “Analytical Aspects of an Anti–Inflation Policy” (with Paul Samuelson) (i) sovereign debt crises (i), (ii) Soviet Union, break up (i), (ii) speculation (i) speculative motive (i), (ii) stag-deflation (i) stagflation (i), (ii), (iii) Stalin, Joseph (i) static vision (i) statistics (i) development of (i) historical research (i) usefulness (i) sterling, as reserve currency (i) stochastic calculus (i) stock market crash, London (i) stock markets bull run (i) competition (i) computer technology (i) stock prices, randomness (i) Stockholm School (i) Stop-Go cycle (i) policy (i) Summers, Larry (i) surplus value (i) sustainable recovery, sources of (i) Sutcliffe, Robert (i), (ii) sweetwater economists (i), (ii) Sweezy, Paul (i) System of Natural Liberty (i) T bills (i), (ii), (iii) tatonnement (i) tax cut, US (i) technical progress, role of (i) technological innovations author’s experiences (i) displacement effect (i), (ii) and manufacturing location (i) see also computer technology technological shocks (i) telecommunications (i) Thailand, Crisis, 1997 (i) Thatcher, Margaret (i) theories, need for validation (i) theory of economic behavior of the household (i) Thornton, Henry (i) time, role of (i) time series data (i) Tinbergen, Jan (i) Tobin, James (i) Tobin tax (i) total money supply, and prices (i) total output, heterogeneity (i) trade doctrine see under Ricardo trade-off, unemployment and inflation (i) trade surpluses, banking (i) trade unions effect on money wage (i) as harmful (i) power (i) rise of (i) strengthening (i) weakening (i) transactions motive (i) transmission mechanism (i) Troubled Assets Recovery Program (TARP) (i) true costs of production (i) Truman, Harry (i) trusts (i) Tugan-Baranowsky, Michael (i) Turkey (i) Turner, Adair, Lord (i) Two Treatises on Government (Locke) (i) uncertainty (i) underemployment equilibrium (i), (ii), (iii) undersaving (i), (ii) unearned income (i) unemployment aggregate level (i) cycles (i) effect of wages (i) explaining (i) and inflation (i) involuntary (i) and money wage (i) natural rate (i) see also Keynesian models unifying principle (i) unique static equilibrium, and moving data (i) unit labor costs (i) United Kingdom budget deficit elimination (i) deindustrialization (i) economic trajectory (i) Great Depression (i) monetarism (i) recovery strategy (i) see also Britain United Nations Industrial Development Organization (UNIDO) (i) United States budget deficit (i) deindustrialization (i) econometric modeling (i) economic trajectory (i) economic weakness, post WWI (i) fiscal boost (i) Gold Standard (i) Great Depression (i) interest rates (i) Keynesianism (i) post-World War I power (i) post-World War II (i) Progressive Movement (i) prosperity (i) recovery strategy (i) seigniorage privilege (i) tax cut (i) trade deficit (i) welfare state expansion (i) westward expansion (i) withdrawal of currency (i) see also America unorthodoxy (i) urbanization (i) US House of Representatives, Greenspan’s testimony (i) usury defining (i) laws (i) prohibition (i), (ii) utopianism (i), (ii) valuation of assets, theory of (i) of capital (i) value vs.price (i) as price (i) relative (i), (ii) value added (i) value of goods, determination (i) variable costs (i) variables (i) Vietnam War (i) visions of economy (i) vocabulary, economic (i), (ii), (iii) volition (i) wage agreements, voluntary (i) demands, post-World War I (i) downward trend (i) effect on unemployment (i) rates, and unemployment (i) restraint (i) rises (i) share: declining (i); developed and developing economies (i); rise in (i), (ii) wage/profit distinction (i) units (i), (ii) see also money wages; real wages Walras, Antoine Auguste (i) Walras, Léon (i), (ii) Walrasian model (i) wars, financing (i) wealth distribution (i) inequality of (i) indicators (i) Smith’s theory (i) weaving, mechanization (i) welfare economics (i) welfare state, levels of support (i) White, Harry (i) Wicksell, Knut (i), (ii) basis of Hayek’s theory (i) later development of ideas (i) Wicksellian boom, developing countries (i) Wicksellian cycle, combined with Kondratieff cycle (i) William III (i) women, in workforce (i) workers dependence on capitalists (i) living standards (i) migration (i) productive/unproductive (i) workforce, recruitment of women (i) World Trade Organization (WTO) (i), (ii) World War I (i) World War II, outbreak (i) yields (i) Zombie firms (i)

(i), (ii) Rothschilds (i) Roubini, Nouriel (i) Royal Charter, grants of monopoly (i) rules of competition (i) Russia (i), (ii) Russian revolution (i), (ii) saltwater economists (i), (ii) Samuelson, Paul (i), (ii), (iii), (iv) “Analytical Aspects of an Anti–Inflation Policy” (with Robert Solow) (i) Say, Jean-Baptiste (i) Say’s Law (i), (ii) scarcity value (i) Scholes, Myron (i), (ii), (iii) Schumpeter, Joseph (i), (ii), (iii), (iv) The Theory of Economic Development (i) Schwartz, Anna, A Monetary History of the United States (with Milton Friedman) (i) Scottish Enlightenment (i) Second International (i) secular stagnation (i) securitization of mortgages (i) seigniorage privilege (i) self-interest (i) self-organizing society (i) self-sufficiency (i) service sector (i), (ii) servomechanism (i) shadow banking structure (i) shares (i) Sherman Act (i) Shiller, Robert (i), (ii) shocks (i), (ii), (iii) contagion (i) debt crises (i) political (i) see also oil shock short cycles (i) short-run rate of interest (i) Silesian weavers (i) single global currency (i) skills, types needed (i), (ii) slack (i) slavery, abolition of (i) Slutsky, Eugen (i), (ii), (iii) Smith, Adam (i), (ii), (iii), (iv), (v) the founding of the political economy (i) An Inquiry into the Nature and Causes of the Wealth of Nations (i), (ii) The Theory of Moral Sentiments (i), (ii) social science, founding (i) Socialist International (i) society regulation (i) self-organizing (i) Solow, Robert (i), (ii), (iii) “Analytical Aspects of an Anti–Inflation Policy” (with Paul Samuelson) (i) sovereign debt crises (i), (ii) Soviet Union, break up (i), (ii) speculation (i) speculative motive (i), (ii) stag-deflation (i) stagflation (i), (ii), (iii) Stalin, Joseph (i) static vision (i) statistics (i) development of (i) historical research (i) usefulness (i) sterling, as reserve currency (i) stochastic calculus (i) stock market crash, London (i) stock markets bull run (i) competition (i) computer technology (i) stock prices, randomness (i) Stockholm School (i) Stop-Go cycle (i) policy (i) Summers, Larry (i) surplus value (i) sustainable recovery, sources of (i) Sutcliffe, Robert (i), (ii) sweetwater economists (i), (ii) Sweezy, Paul (i) System of Natural Liberty (i) T bills (i), (ii), (iii) tatonnement (i) tax cut, US (i) technical progress, role of (i) technological innovations author’s experiences (i) displacement effect (i), (ii) and manufacturing location (i) see also computer technology technological shocks (i) telecommunications (i) Thailand, Crisis, 1997 (i) Thatcher, Margaret (i) theories, need for validation (i) theory of economic behavior of the household (i) Thornton, Henry (i) time, role of (i) time series data (i) Tinbergen, Jan (i) Tobin, James (i) Tobin tax (i) total money supply, and prices (i) total output, heterogeneity (i) trade doctrine see under Ricardo trade-off, unemployment and inflation (i) trade surpluses, banking (i) trade unions effect on money wage (i) as harmful (i) power (i) rise of (i) strengthening (i) weakening (i) transactions motive (i) transmission mechanism (i) Troubled Assets Recovery Program (TARP) (i) true costs of production (i) Truman, Harry (i) trusts (i) Tugan-Baranowsky, Michael (i) Turkey (i) Turner, Adair, Lord (i) Two Treatises on Government (Locke) (i) uncertainty (i) underemployment equilibrium (i), (ii), (iii) undersaving (i), (ii) unearned income (i) unemployment aggregate level (i) cycles (i) effect of wages (i) explaining (i) and inflation (i) involuntary (i) and money wage (i) natural rate (i) see also Keynesian models unifying principle (i) unique static equilibrium, and moving data (i) unit labor costs (i) United Kingdom budget deficit elimination (i) deindustrialization (i) economic trajectory (i) Great Depression (i) monetarism (i) recovery strategy (i) see also Britain United Nations Industrial Development Organization (UNIDO) (i) United States budget deficit (i) deindustrialization (i) econometric modeling (i) economic trajectory (i) economic weakness, post WWI (i) fiscal boost (i) Gold Standard (i) Great Depression (i) interest rates (i) Keynesianism (i) post-World War I power (i) post-World War II (i) Progressive Movement (i) prosperity (i) recovery strategy (i) seigniorage privilege (i) tax cut (i) trade deficit (i) welfare state expansion (i) westward expansion (i) withdrawal of currency (i) see also America unorthodoxy (i) urbanization (i) US House of Representatives, Greenspan’s testimony (i) usury defining (i) laws (i) prohibition (i), (ii) utopianism (i), (ii) valuation of assets, theory of (i) of capital (i) value vs.price (i) as price (i) relative (i), (ii) value added (i) value of goods, determination (i) variable costs (i) variables (i) Vietnam War (i) visions of economy (i) vocabulary, economic (i), (ii), (iii) volition (i) wage agreements, voluntary (i) demands, post-World War I (i) downward trend (i) effect on unemployment (i) rates, and unemployment (i) restraint (i) rises (i) share: declining (i); developed and developing economies (i); rise in (i), (ii) wage/profit distinction (i) units (i), (ii) see also money wages; real wages Walras, Antoine Auguste (i) Walras, Léon (i), (ii) Walrasian model (i) wars, financing (i) wealth distribution (i) inequality of (i) indicators (i) Smith’s theory (i) weaving, mechanization (i) welfare economics (i) welfare state, levels of support (i) White, Harry (i) Wicksell, Knut (i), (ii) basis of Hayek’s theory (i) later development of ideas (i) Wicksellian boom, developing countries (i) Wicksellian cycle, combined with Kondratieff cycle (i) William III (i) women, in workforce (i) workers dependence on capitalists (i) living standards (i) migration (i) productive/unproductive (i) workforce, recruitment of women (i) World Trade Organization (WTO) (i), (ii) World War I (i) World War II, outbreak (i) yields (i) Zombie firms (i)


pages: 233 words: 71,775

The Joy of Tax by Richard Murphy

banking crisis, banks create money, carried interest, correlation does not imply causation, en.wikipedia.org, failed state, full employment, Gini coefficient, high net worth, land value tax, means of production, offshore financial centre, quantitative easing, race to the bottom, savings glut, seigniorage, The Spirit Level, The Wealth of Nations by Adam Smith, transfer pricing

This might apply to the income a person earns from companies and trusts, or from royalties. This logic has particular relevance in the case of banks who can, as has already been noted in this book, create money out of thin air because they have been granted a banking licence, and can then charge interest on the funds that they have created costlessly. The gain in this case is technically called seigniorage, which is usually defined as the profit made by a government by issuing currency. Banking licences actively outsource this right to make profit: additional taxes on banks seek to recover the additional wealth that they have accumulated as a result. In combination these observations make an important point: what they imply is that some of the preferential tax regimes that have existed, for example for capital gains, which have attracted additional tax allowances for the people that enjoy them and have often been taxed at lower rates than are charged on income, make no economic sense.

K. 51 GDP 171 debt and 213 and economy 84 fiscal policy and 58–9 government spending as proportion of 76+n, 77, 81–2 taxation as proportion of 34–5 General Anti-Abuse Rule 112, 113, 224 General Anti-Avoidance Principle, proposed 224 Generally Accepted Accounting Principles, UK 222 gifts 183, 184 gilts 49–52 Gini coefficient 63n global warming see climate change global wealth tax 190 Global Witness 124 Google 135 government(s) 27, 39–40 balancing books/budget 52, 60–1, 76, 86–7, 94–5, 212–13, 238 borrowing 89 businesses, mistaken analogy with 86–7, 89 and creation of money 49, 209–10 demand for services to be supplied by 157–60 and the economy 104, 156–60, 170, 210 (see also austerity) intervention following 2008 crash 78, 79 and ownership 59 participation and 31, 37–44 spending see government spending states without 32 surpluses 58, 59, 60, 76–8, 130 and ‘taxpayers’ money’ 39–44 see also democracy government debt 46, 49–52, 59–60, 87, 213–14 government spending and business success 185 effects of cutting 89–90 flat taxes and 75 need for 95–6, 210 relationship to taxation 45, 52–5, 80–4, 162, 210, 211–12, 214 Greece 148 Green New Deal Group 9, 10 Green parties 84, 94 growth 83, 84, 90, 104, 158, 170, 171–2, 215 Guernsey 124 harmonization, international 133 health services 64, 158, 168 see also NHS Heritage Foundation 35 HM Treasury 109, 110–11, 114, 117 HMRC 112–14, 116, 119–21 access to 118–21, 202–3 and accountability 116–18, 203, 204–6, 218–20 attitudes 119–20 on compliance 33–4, 35, 67 and data exchange 123–4, 127 and research 108, 110 staff and resources 113, 120–1, 202–4 structure and governance 203–4, 219, 220 Hodge, Margaret 114, 117 horizontal equity 138–9, 197 House of Commons Library 109 House of Commons Select Committees 205, 220–1 see also Public Accounts Committee and Treasury Committee house prices 185–6, 214, 225–6, 229 housing 159, 175–6, 186, 225–7, 228–9, 238 housing support 192, 194, 229 identity theft 201 ignorance 68, 108 illegitimate economic activity 56 imports 88 income(s) 180–1 falling in real terms 83, 90 sources of 138–9 taxation and 31 under-declaration of 98–9 income tax 14, 16, 65, 163–5, 230 citizen’s income and 193–4 higher rates 73 as proportion of tax paid 28, 29, 30, 72 schedular form 152 tithing and 15 as universal 235 voting and 65 inequality 63n, 74 see also equity/equality and redistribution inflation 46, 53, 54, 57, 59, 61, 182, 210 flat taxes and 75 house prices and 185–6 influence 31, 37 information exchange 123–4, 127, 184 infrastructure 158–9, 229 inheritance taxes 15, 29, 31, 73, 183, 226 innovation 136–7 Institute of Directors 68–9, 72 Institute of Economic Affairs 68–9, 70–1, 101 Institute for Fiscal Studies 109 insurance premiums 29, 223 interest 51, 52n, 58, 181–2 banks and 49, 50 monetary policy and 59 money and 51 tax and 30, 196, 223, 228–9, 231 interests 69, 70, 71, 109, 113, 116 conflicts of 115 government and 19, 44 intergenerational contract 143 International Financial Reporting Standards 222 International Financial Reporting Standards Foundation 199 international issues 133–6, 197–8 see also tax havens interpretation 111–12, 153 investment 89, 176, 234 savings and 209, 231 investment income 72, 98, 99, 138, 163, 180, 224, 231–2 Ireland 126, 134, 146, 163 ISAs 175, 231 Jersey 10, 124, 126 Jesus 16 Joffe, Lord 114–15 Kennedy, John F. 32n labour, taxing 190 see also national insurance land ownership 185 land value tax, proposed 186–7, 227–8 land-based taxes 15, 16, 21, 163, 164, 185–7 landfill tax 31 landlords 228, 229 language 115–16, 153, 196, 218 law 36–7, 39, 148, 153 complexity 154, 217 letter and spirit of 112, 153, 154, 218 purposive basis 112, 217–18 law and order 132, 159 Lawson, Nigel 182 lawyers 69, 102, 114, 116, 217 liability 184, 221, 225, 226 see also companies libertarians and libertarian views 39–40, 42, 68–80, 132 life expectancy 167n, 168 Lincoln, Abraham 61+n living standards/needs 35, 57, 61, 141–4, 168 loans 47–8+nn, 49–52, 208, 209 repayment of 49, 50, 53 local government 65, 186 see also council tax London, City of 18–19, 187 loopholes 97, 112, 153–4, 168, 187, 196, 197 Luxembourg 126, 134–5, 146 macroeconomics 85, 87–8, 161, 165, 170–1 Magna Carta 18–19, 22, 37, 131 Man, Isle of 124, 126 marginal tax rates 145, 172–3, 174, 192, 194, 235 markets, government policy/taxation and 58–9, 61, 63–4, 170–1, 187–8, 191, 212, 215, 236 marriage 24–5, 225 Mazzucato, Mariana 136 Meacher, Michael 153–4 media comment 157, 158 microeconomics, misapplication to government 86–7 middle ground in politics 157–8 minimal-state ideology 155–6, 158 Mirrlees Review 109 misconceptions 86 mistrust 152, 154 Mitchell, Dan 134 monarchy 20–2, 117, 219 monetary policy 58, 59–60 money 46–7 creation of 45–52+nn, 53, 86–7, 181–2, 208–9, 214 debt and 213 decreasing value to individuals 144–5, 181 destruction of 48n, 49, 53, 213 and the economy 209 equivalence 181, 224, 233 importance of 57 profit and 48–9 promises and 49, 51, 56 tax and 14, 56–7, 85–8, 180 value of 56–7, 66 see also bank transactions and financial transactions mortgages 89, 228–9 MPs, resources available to 109–10, 112 multinational companies 124–7, 150–2, 198, 201, 222 Murphy, Richard 110, 112, 113, 126, 131n, 153–4, 192, 203n mutuality 133 nation states 23, 24, 25–7, 35 National Audit Office 205 national debt 46, 52, 76, 213 national insurance 167–9, 172–3, 189, 232 and benefits system 189, 191 as proportion of tax paid 29, 161, 169, 189 proposals for replacing 72, 164, 189, 190, 194, 232–3 and unearned income 231–2 needs 57, 141–4 see also sufficiency Netherlands, the 126, 135, 146 NGOs 110 NHS 158, 167, 189 Northern Ireland 166 objectivity 105 OECD 125, 126, 134n, 150, 151 Office for Budget Responsibility 52, 91–3, 205 Office for Tax Responsibility, proposed 205, 220–1 offshore arrangements 99–100, 190 oil 35, 63 opacity see secrecy Osborne, George 59, 76–8, 82, 90–1, 174 overdrafts 48 ownership, tax and 38–44 Oxford Centre for Business Taxation 108–9, 110 Oxford Dictionary, definition of tax 30–2, 35–6, 37, 43 Paine, Thomas 24 parties, political 84, 94 partnerships, business 42 partnerships (marriage) 24–5, 225 Paul, St 16 Pay As You Earn 167, 173 PCS (Public and Commercial Services Union) 203n peace 131–3, 136, 137 Peasants’ Revolt (1381) 20, 37 pension funds 50, 60 pensioners 72, 232 pensions 143, 167, 168, 174–5, 189, 192, 235 citizen’s income and 192 personal allowances 72, 193, 230, 235 Pickett, Kate 145 Piketty, Thomas 190 Plaid Cymru 84, 94 plutocracy 71 politicians 84–5 poll taxes 15, 16, 20, 33, 37, 186 pollution 63, 191, 212 poverty 192, 194 power 17, 20, 23 price elasticity of demand 64 product safety 159 profit, banking and 48–9 profit-shifting 134–5 proof, onus of 196, 217, 224 property taxation and 31, 39–44, 54, 71 see also council tax, housing and land property rights 39, 41, 42–3, 132 protest 33, 37 see also conflict Public Accounts Committee, House of Commons 109, 114, 117, 204 public spending see government spending Quaker beliefs 10, 131n quantitative easing 46, 47n, 49–52, 58, 60, 229–30, 238 Rabushka, Alvin 78–9 recession 78, 79–80, 191 reciprocal rights and double tax treaties 223 reclamation see under tax/taxation redistribution 62–3, 66, 144, 185, 230, 238 Reed, Howard 192 representation, taxation and 19–20, 22–7, 31, 37–8, 65, 66, 70–1 repricing, tax as 64, 66 research 108–10, 135–6, 236 responsibility 39 retirement, saving for 174–5, 231 see also pensions right-wing views 68–80, 156–7, 158 rioting 33 road use 191 Roman Empire 15–16 Rousseau, Jean-Jacques 26–7 royalties 181, 223 sales taxes 15–16, 163, 187 see also VAT saving 59, 87, 89+n, 90–1, 172 investment and 209 tax and 175, 231 schools 108 Scotland 33, 37, 166 independence referendum (2014) 23, 24, 26, 128–9 Scottish National Party 84, 94 secrecy 69, 99, 122, 151, 152, 201 secrecy jurisdictions 135 seigniorage 182 self-employed people 98, 167, 168, 173 shadow economy 55–6, 146–8 shareholders 200–1, 233 simplicity 133, 152–5, 218, 230, 236 of money creation 51 see also flat taxes Singapore 126 skills, funding 136–7 Smith, Adam 24, 70, 129–31, 137 smuggling 14, 163 social contract 26–7, 132–3 social mores, taxation and 24–7 social security systems 191–2 see also welfare benefits socialism 157 speculation 171, 185, 187, 214, 224 Spirit Level, The 145 stamp duty 29, 73, 187, 228 Starbucks 135 states and statehood 23, 24, 25–7 extent of role 156–60 see also government(s) stigma 194, 235 student loans 173–4 subjectivity 105 sufficiency 141–4 sustainability 57, 215 Switzerland 135 tax/taxation acceptance of 25–6, 32–8, 67–8, 96 administration of 16, 123, 219–21 (see also HMRC) alternatives to 45–7 and choice 68, 96, 103, 106, 126–9 as counterbalance 53–5 definitions and perceptions of 30–2, 35–6, 37, 40–4 education concerning 102, 106–8 efficient 160–1 embracing 25, 27, 44, 238 functions 55–66 history 13–26 inclusivity and default 196, 217 indirect 74 ownership 38–44, 216 payment in kind 14, 15, 16 political context 37–9, 105 process, stages of 122–3 progressive 15, 139, 145, 181, 189, 230 and property 39–44, 54 as proportion of income 74–5 range of and proportions of revenue raised in UK 28, 29 reasons and purposes for 52–66, 160, 178 as reclamation of money spent 52–5, 75, 81, 180, 210 regressive 139, 189–90, 227, 237 responsibility for 219 right to spend 39 scope of 196, 217 unacceptable 33, 37 see also under government spending tax abuse 14, 16, 96–102, 103, 168, 195–6 victims of 101 see also tax avoidance and tax evasion tax avoidance 43, 96–7, 99–102, 103, 110, 173, 198 anti-avoidance principle 112, 113, 196 flat taxes and 74 proposed legislation against 153–4, 224, 236 tax base(s) 16, 31, 122, 179, 222–3 defining 179, 196 finding 197, 201 inclusive 195–7, 217 inconsistent 183 tax competition 133–4, 135–6 tax design 169 tax evasion 43, 69, 96–9, 100–1, 103, 110 tax gap 110, 220 tax havens 35, 69, 99–102, 123–4, 126, 134, 135–6, 201–2 registration of companies in 151 and secrecy 149–50 UK and 146, 174 wealth taxes and 184 tax justice 220 tax justice movement 149, 151, 184, 201 Tax Justice Network 9, 124 tax offices 118–21 tax policy 156, 229–30 tax reliefs 25, 97, 165, 175, 176, 196 Tax Reporting Standards Board, proposed 222 Tax Research Network 109 Tax Responsibility, Office for, proposed 205, 220–1 Tax Select Committee, proposed 205 tax systems 129–55, 168–9, 171, 178–80, 224 Taxation, Department of, proposed 219–21, 227 Taxation and State-Building in Developing Countries (Brautigam et al.) 26n Taxpayers’ Alliance 68–9, 70, 72 ‘taxpayers’ money’ 39–44, 216 Teather, Richard 101 technology 135–6, 176 temporary residence rule, proposed 197, 222 tenants 228, 229 Thatcher, Margaret 33, 68, 70, 86, 101 theft 36, 43, 44 tithing 15 tobacco 64, 74, 191 trade deficit 89 transparency 123–7, 216 transport 158–9, 176, 191 Treasury Committee, House of Commons 117 tribunals 118 trust 119–20, 148–9, 152, 154 trusts 42, 184 truth 30, 52, 84, 133, 146–52 Turner, Adair 52n 2020 Tax Commission 72, 75, 76 Tyler, Wat 20 UK aggregate tax rate 35 proportion of tax taken by different taxes 28, 29, 139 right to leave 32 shadow economy 146 and tax havens 146, 174 tax paid by income decile 139–40 UK GAAP 222 ‘UK plc’ 86 UK political parties 84, 94, 157–8 unemployment, effects 83, 89 universal credit 174 universities 107–9 US dollar 55–6 USA, Declaration of Independence 22–3, 24, 26 VAT 64, 74, 174, 187, 189, 236–7 exemptions 64, 236 as proportion of tax paid 29, 161 vertical equity 139 Virgin Islands, British 124 voting rates 42, 65 Walmart 150 Walmsley, Brad 70–1 wars 18, 53, 131–2 wealth concentration of 185 taxation and 28–30, 31, 73–4, 180–7, 190–1 Wealth of Nations, The (Smith) 24, 129–31 wealth taxes 16, 123, 163, 165, 183–7 global 190, 226–7 proposed 226–7, 228 see also financial transactions tax welfare benefits 62–3, 167 interaction/integration with tax 142, 174, 191–5, 234–6 national insurance and 189 unclaimed 194 as universal 235 welfare state 142–3 well-being, taxation and 35, 61 Wilkinson, Richard 145 work 194–5, 238 see also employment World Economic Forum 74 Worstall, Tim 71 Zimbabwe 35 About the Author Richard Murphy is a UK chartered accountant.


pages: 920 words: 233,102

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State by Paul Tucker

Andrei Shleifer, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, conceptual framework, corporate governance, diversified portfolio, Fall of the Berlin Wall, financial innovation, financial intermediation, financial repression, first-past-the-post, floating exchange rates, forensic accounting, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, incomplete markets, inflation targeting, information asymmetry, invisible hand, iterative process, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, liberal capitalism, light touch regulation, Long Term Capital Management, means of production, money market fund, Mont Pelerin Society, moral hazard, Northern Rock, Pareto efficiency, Paul Samuelson, price mechanism, price stability, principal–agent problem, profit maximization, quantitative easing, regulatory arbitrage, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Robert Bork, Ronald Coase, seigniorage, short selling, Social Responsibility of Business Is to Increase Its Profits, stochastic process, The Chicago School, The Great Moderation, The Market for Lemons, the payments system, too big to fail, transaction costs, Vilfredo Pareto, Washington Consensus, yield curve, zero-coupon bond, zero-sum game

At one end of the spectrum, the fiscal authority could give a formal blanket indemnity against loss, but dictate the population of assets eligible in the central bank’s operations and, thus at least indirectly, the scope and form of its market operations. At the other end of the spectrum, the central bank could be given a statement of purposes and permitted to offset losses against the seigniorage income due to the fiscal authority, with freedom to choose the form and scope of its operations. There are myriad points in between those poles, including central banks surrendering all the seigniorage, financing themselves instead from a levy on the banking system (the UK model), and case-by-case approval and indemnities for certain kinds of operation. A society should know where its central bank regime lies on that spectrum, and recognize that its choice matters to insulation. Economists are fond of saying that central banks cannot go bust, but where local norms require positive net worth to be recorded in published accounts, recapitalization following losses would hand a big political lever to the executive and legislative branches.10 Constraints: Absolutes and Desirables Beyond that, there are also some obvious constraints on any FCO.

A recent paper going beyond insulation from the president is Selin, “Agency Independent.” 9 Research on the US administrative state finds that US “independent-agency” regimes are more durable there than policy regimes delegated to the executive branch (including executive agencies) (Lewis, “Policy Durability”). 10 The difference in political contexts and cultures makes it hard for me to understand why the Fed did not say publicly that this was wrong: that seigniorage should go to the central federal coffers for Congress to dispose of. 11 As I write, some of these issues are heading to the Supreme Court, and a new acting head has been appointed. 12 Thornborough, “Overcriminalisation.” 13 The Securities and Exchange Act of 1934 creates a criminal offense of financial fraud but does not define it. In the early 1940s, the SEC issued rules fleshing out that crime but did not apply them to insider trading until the 1960s (as a civil offense) and the 1970s (as a criminal offense).

Putting to one side how well any of these operations worked, there are two big issues for legitimacy. First, allocating or steering credit to particular economic sectors or specific borrowers seems at odds with the Delegation Criteria since it involves choosing who to favor.3 Second, outright purchases of risky bonds are just that: risky. If the risks crystallize, the taxpayer picks up any costs, if only through the central bank paying the Treasury lower dividends (known as seigniorage; broadly, the profits central banks make by financing interest-bearing assets through the creation of money). As I write, this will not go away quickly. Even after purchases cease, it will take a long time for the portfolios of purchased securities to mature or be sold off, with private financing taking their place. More profoundly, central banks now have choices unavailable in the past. Since the new millennium, many have moved to paying the policy rate of interest on bankers’ reserves balances with them—the ECB and the Bank of England before the crisis, the Federal Reserve during the crisis.


pages: 207 words: 86,639

The New Economics: A Bigger Picture by David Boyle, Andrew Simms

Asian financial crisis, back-to-the-land, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, capital controls, carbon footprint, clean water, collateralized debt obligation, colonial rule, Community Supported Agriculture, congestion charging, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, deskilling, en.wikipedia.org, energy transition, financial deregulation, financial exclusion, financial innovation, full employment, garden city movement, happiness index / gross national happiness, if you build it, they will come, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Kickstarter, land reform, light touch regulation, loss aversion, mega-rich, microcredit, Mikhail Gorbachev, mortgage debt, neoliberal agenda, new economy, North Sea oil, Northern Rock, offshore financial centre, oil shock, peak oil, pensions crisis, profit motive, purchasing power parity, quantitative easing, Ronald Reagan, seigniorage, Simon Kuznets, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trickle-down economics, Vilfredo Pareto, Washington Consensus, wealth creators, working-age population

Thomas Edison and Henry Ford teamed up to urge that government borrowing for capital projects should be done differently: the government should create the money themselves, lend it to the project without interest – or as the Islamic banks do, at a fee – and withdraw it from circulation to avoid inflation as the project began to pay.19 At present, the profits that come from creating money – known as seigniorage – nearly all go to the banks, when it is argued that they properly belong to us as citizens. It is certainly true that the WHY DID CHINA PAY FOR THE IRAQ WAR? 59 power to create unlimited sums, which has been taken up by the banking system as a whole, is a privilege that ought to be taxed at the very least and certainly better regulated. But the idea that governments alone should create money, while it is clearly part of the alternative economics tradition, is not strictly ‘new economics’ in the sense that it does not share the new economics scepticism about money and its measuring power.

(John Kenneth) 41, 51 gambling 14–15, 152 Gandhi, Mohandas (Mahatma) 18, 19, 21, 110, 112 Gates, Bill 141 Gates, Jeff 141–2 GDP (gross domestic product) 10, 32, 36–40, 42, 43, 54, 79 alternatives to 40–2, 43 bad measure of success 10, 37, 55, 78 INDEX global 141 UK 4 see also growth genetically modified crops see GM crops Germany 33, 50, 58 Gladwell, Malcolm 68 Global Barter Clubs 57, 58 global commons 113, 148 global currencies 56, 61, 120, 147–8 global greenback 61 global warming 3, 3–4, 115, 155 see also climate change globalization 8, 28, 143, 153 see also interdependence GM (genetically modified) crops 91, 117, 119, 140–1 Goetz, Stephan 124 gold standard 8, 143 Good Life, The (BBC sitcom) 69 goods, local 19, 109, 110 Goodwin, Fred 142 government borrowing 37–8, 49–50, 58, 62, 141 governments 2, 28, 116, 129, 158 creating money 58–9, 62, 90 propping up banking system 6, 7 Graham, Benjamin 120 Grameen Bank 26, 143–4, 153 Great Barrington (Massachusetts) 57, 151–2, 153 Great Depression 3, 36, 57 green bonds 157 green collar jobs 106, 157 Green Consumer Guide, The (Elkington and Hailes, 1988) 26, 69, 72 green economics 23, 100, 117 green energy 26, 97, 102–3, 114, 156, 157 Green New Deal 156–8 green taxation 153 greenhouse gas emissions 3–4, 115, 148 gross domestic product see GDP Gross National Happiness 43 growth 2, 11, 12–13, 23, 36–7, 38–40, 42, 43 185 bad measure of success 10, 158 maximizing 25 and poverty 4, 39–40, 81–2 and progress 39, 78 wealth defined in terms of 32 and well-being 4–5 see also GDP guilds 80, 80–1 happiness 12, 18, 29, 41, 43, 45–6 Happy Planet Index 32–3, 34, 43 Hard Times (Dickens, 1854) 36 HBOS 7 health 46, 72, 78, 96, 115, 129 health costs 117 healthcare 13, 33, 44 hedge funds 5, 7, 97, 120 Helsinki (Finland) 102 HIV/AIDS 70, 111, 135, 148 Honduras 139, 141 house prices 36, 46, 79, 83, 91, 126–7, 151 London 53, 54, 91 see also mortgages Howard, Ebenezer 105, 158 HSBC 5 human interaction 67–8, 74 human needs 20, 24, 67, 86 human rights 110–11, 116, 147 ill-health 35, 38, 46 ‘illth’ 29, 35 IMF (International Monetary Fund) 27, 82, 91, 135–6, 139, 143, 147, 147–8 incomes 24, 37, 43, 44, 78, 79, 81 and happiness 45–6 inequalities 37, 81, 82, 142 of poorest 4, 81, 82, 112, 142 Index of Sustainable Economic Welfare see ISEW India 82, 91, 110, 119, 136, 139–40, 153 indigenous knowledge 82, 117 inequality 4, 81–2, 96, 112–13, 116 inflation 8, 22, 58, 90 information technology 58, 59, 115 186 THE NEW ECONOMICS intellectual property 82, 91, 110, 113, 116, 117 interdependence 111–20, 135–8 Keynes on 19, 109, 110, 115, 143 see also globalization interest 8, 11, 11–12, 58, 77, 157 interest rates 144, 144–5 interest-free money 43, 73, 84, 90 intergenerational equity 25, 117 international bankruptcy 147 International Monetary Fund see IMF investment 14, 45, 53, 60, 104, 118, 137–8 ethical 26, 69–70, 74, 154 involvement 71, 75, 128–30 Iraq 49, 60, 136 ISEW (Index of Sustainable Economic Welfare) 40–1, 43, 78 Islamic banking 58, 90, 146 islands, small 31–2, 33–4 Italy 33, 119–20, 138 Ithaca hours currency 57, 58 It’s a Wonderful Life (film, Capra, 1946) 38 Jacobs, Jane 56, 110, 126 Jaffe, Bernie 126 Japan 26, 50, 91, 113, 119, 128 Jefferson, Thomas 18, 20 Jersey 52, 53 Jones, Allan 103 Jubilee Debt campaign 137 junk bonds 1, 142–3 just-in-time 123–4, 155 Keynes, John Maynard 2, 13–14, 15, 17, 21, 37, 55 on interdependence 19, 109, 110, 115, 143 international currency 61, 120 on local production 19, 109, 110 on ‘practical men’ as ‘slaves of some defunct economist’ 10, 35, 67, 87, 159 Keynesian economics 8, 18, 22, 27, 28 Kinney, Jill 130 Knowsley (Merseyside) 104 Kropotkin, Peter 18 Krugman, Paul 52 land 19, 82, 96 land tax 43 landfill 97, 98, 100, 107 Layard, Richard 41 Lehigh Hospital (Pennsylvania) 129 Letchworth Garden City (Hertfordshire) 105 lets (local exchange and trading systems) 57 liberalism 18, 19, 27 Lietaer, Bernard 56, 61, 120 life 19, 29, 55, 69, 86, 91 need for meaning 42, 75 life expectancy 31, 32–3, 82 life poverty 82–3 life satisfaction 31, 33, 41, 42 Lima (Peru) 130–1 Linton, Michael 57, 58 Living Economy, The (Ekins, 1986) 24–5 LM3 (Local Money 3) 60, 104–5 loans see debt Local Alchemy programme 152–3 local circulation of money 103–5, 107, 124, 151–2 local currencies 26, 56, 57, 58, 59, 60, 151–2, 153 local economies 26, 81, 85, 86, 105–7, 118, 124, 133 local exchange and trading systems (lets) 57 local food 2, 118, 119–20, 151 local governments 6, 44, 60 local life 4, 81, 158 Local Money 3 see LM3 local production 109, 116, 118 local savings schemes 61 local shops 75, 82–3, 104, 124, 124–5, 126, 151 supermarkets and 80, 105, 125 local wealth 14, 53–4 localization 155–6, 159 London 52, 53, 61, 97, 102, 103 house prices 53, 54, 91 traffic speed 65–6 INDEX London Underground 147 Lutzenberger, Jose 26 Macmillan Cancer Care 88–9 McRobie, George 22, 24 mainstream 4–5, 26, 154, 159–60 see also economics Malawi 135–6, 137 Malaysia 51 Manchester United 155 manipulated debt 139–41 markets 10, 12, 51, 70, 158 financial 1–2, 52, 53, 55, 138, 154–5 free 22, 85, 112–13 new economics and 67, 72–5, 85 Marsh Farm estate (Luton) 104–5, 152–3 Maslow, Abraham 67 materialism 12, 46–7 Max-Neef, Manfred 24 Maxwell, Robert 143 MDGs (Millennium Development Goals) 39, 136 Mead, Margaret 129 meaning, need for 42, 75 measurement problem 36–40 measuring 12, 42, 55, 85 success 2, 8, 10, 43, 44, 55, 154, 156, 158 value 10, 15, 29, 53, 59, 115 wealth 32, 37–40, 53–4 well-being 4, 18, 32–3, 34, 43 mechanics, Cuban 95–6, 97 medieval economics 78–80, 80–1 mega-rich 120, 141, 142 mental health 4, 35, 36, 46, 68, 83 Merck 99 micro-credit 26, 143–4, 145, 146, 151, 153 Milkin, Michael 142 Millennium Development Goals see MDGs minimum wage 92 misery, of UK young people 35–6 Mishan, E.J. 40 Mogridge, Martin 65–6, 74 Mondragon (Spain), cooperatives 153 money 8, 11, 13, 18, 27, 29, 36, 95 187 as a bad measure 10, 15, 18, 53, 59, 90, 143, 154 creating 7, 56–7, 58–9, 84, 90, 120, 138, 147 designed for money markets 53 economics and 25, 127 externalities 35 and life 55, 86, 154, 159 local circulation 103–5, 107, 124, 151–2 means to an end 15 new economics view 15, 59–60, 89 new ways of organizing 56–60 re-using 103–5 replacing with well-being 42 slowing down 51–2, 60 too little 57 types of 14–15, 57, 59, 120 and value 10, 15, 53, 59 and wealth 15, 19, 32, 38, 78 and well-being 18, 21, 81 see also GDP; growth; price; trickle down money flows 26, 50–2, 60, 103–5, 107, 124, 136–8 money markets 1–2, 52, 53, 55, 138, 154–5 money poverty 81–2 money system 7–8, 50–6, 60 monopolies 8, 20, 83, 84–6, 89–90, 125–6, 133, 146 Monsanto 85, 140 moral philosophy 12, 19, 72–3 morality 8, 18, 28, 74, 115 economics and 12, 19, 22 Morris, William 18, 78, 151 mortgages 1, 4, 5–6, 6, 7, 46, 91 working to pay 46, 68, 73, 77–8, 79, 81, 83, 84, 89, 126–7, 140 see also house prices motivations 4–5, 11, 67–9, 70, 71, 72, 73, 75 multinationals 14, 61, 84–5, 90, 137–8, 139, 143 multiple currencies 58, 59–60, 60, 90 multiplier effect 103–5 Murdoch, Rupert 52 188 THE NEW ECONOMICS Myers, Norman 117 Nanumaea (Tuvalu) 34 national accounting 37–8, 38–9 national debt 49–50, 83, 84, 139, 141 national grid 102, 106 National Health Service see NHS natural capital 3, 99 natural resources 22, 40, 43, 84, 97–8 needs 20, 24, 25, 67, 75, 86 basic 25, 89, 91–2, 115 nef (the new economics foundation) 24, 26, 45, 71, 104, 131–2, 145 Local Alchemy programme 152–3 see also Happy Planet Index; LM3 ‘neo-liberal’ policies 8, 27–8 Nether Wallop (Hampshire) 80, 81 The Netherlands 58, 106, 138 New Century 5 New Deal for Communities 152 New Deal (US) 157 new economics 2–3, 9–10, 18–19, 28–9, 59, 153–4, 159–60 Cuba as object lesson 96–7 history of 9–10, 18–19, 21–7 and the mainstream 26 as new definition of wealth 15 principles 35, 157–8 new economics foundation see nef New York City 52, 128 News Corporation 52 NHS (National Health Service) 87, 114, 131 Northern Rock 6 Nottingham 35 Nu-Spaarpas experiment 106 Obama, Barack 154, 157 obsolescence, built-in 98, 100, 101 odious debt 146 offshore assets 136–7 offshore financial centres 52–3, 61 oil 3, 96, 115, 117, 155 Oil Legacy Fund 157 orchards 111, 112, 115, 124 organic food 26 Ostrom, Elinor 127 out-of-town retailing 75, 80, 123, 132 overconsumption 32, 40, 44, 113 Owen, Robert 57 ownership 11, 46, 60, 91, 118, 156 paid work 87–9, 92 palm oil 112 Partners in Health 130–1 peak oil 3, 96, 117, 155 Pearce, David 25–6, 98, 115 Peasants’ Revolt (1381) 18 pensions 7, 44, 61, 73, 155 people, as assets 15, 57–8, 128–9, 130, 131 permit trading 45, 117–18, 148 personal carbon allowances 45, 117–18 personal debt 7, 36, 83–4, 91, 140, 141 Petrini, Carlo 119–20 Pettifor, Ann 135, 137 philanthropy 130, 133 policy makers 28, 35, 73, 87, 90 assumptions of 67, 68, 73, 128 Keynes on 10, 35, 67, 87, 159 political agenda 42–7 politicians 11, 54, 159 politics, new 159 pollution 10, 35, 37, 40, 98, 112, 114 by GM genes 91, 117, 119 poor 29, 145–6 Porritt, Jonathon 23 post-autistic economics 9–10, 71–2 poverty 4, 23, 35, 79–80, 81–2, 127 economic system and 13–14, 18, 29, 81–2, 154 interdependence leading to 111–15 reduction 39–40, 51–2, 61, 116, 124–5 poverty gap 4, 52–3, 78, 82 power 10, 12, 25, 28, 53, 141–2 corporate 20, 28, 85 monopoly power 83, 89–90, 125–6, 146 power relationships 29, 114 price 10, 67, 72, 73, 115, 153 Price, Andrew 132 INDEX prices 80, 156, 158 Pritchard, Alison 23 product life cycle 97–8, 101 professionals 130, 132, 133, 159 profits 12, 13, 99 progress 36, 37–8, 39, 43, 44, 77–8, 81–2, 84 Proudhon, Pierre-Joseph 120 psychology, economics and 67–8, 71, 72–3 public goods 148 public sector commissioning 131–2, 133 public services 45, 74, 127–32, 158 public transport 66, 74 ‘purchasing power parity’ 81 Putnam, Robert 126–7, 127–8 189 retirement 46, 73 see also pensions rewarded work 88 rewards 7, 8, 11, 25, 92, 141, 142 roads 66, 115 Robertson, James 17, 22, 23, 55, 145 Rockefeller, John D. 28 Roman Catholic church 19, 21, 117 Roosevelt, Eleanor 96 Roosevelt, Franklin Delano 157 Rotterdam (The Netherlands) 106 rubbish 97–105 Rupasingha, Anil 124 Rushey Green surgery (London) 131 Ruskin, John 17–18, 18, 29, 35, 78, 81 Russia 110 qoin system 58 rainforests 4, 10, 111, 112 ‘rational man’ assumption 10, 71 RBS 142 re-use 97, 99, 100–5 Reagan, Ronald 22, 27 real money, generating 120 ‘real’ wealth 2, 32, 36–40 reciprocity 44, 128, 128–30, 133 see also co-production recycling 97, 98, 100–1, 105–6, 106–7 redistribution 19, 27, 52, 96 regeneration 27, 104, 105, 107, 116, 124, 128 regional currencies 58, 59, 60 regulation 129, 156 competition 85, 113, 125, 126, 133 financial sector 53, 85, 157 relationships 4, 69, 83, 128–30 remittances 137 Rendell, Matt 33 renewable energy 26, 97, 102, 102–3, 114, 156, 157 repair 97, 98, 101, 105, 107 resources 32, 43, 97–8, 99, 100–1, 114, 158 local 25, 115 natural 22, 40, 43, 84, 97–8 St Louis (Missouri) 131 Samoa 34 Sane (South African New Economics) 58 saving seeds 91, 117, 119, 141 savings 7, 46, 73, 90, 157 schools 131 Schor, Juliet 83 Schumacher, E.F. (Ernst Friedrich, ‘Fritz’) 1, 18, 21–2, 27, 114, 117 SDRs (special drawing rights) 147–8 Seattle (Washington) 41 seeds 91, 117, 119, 140, 141 seigniorage 58–9 Sen, Amartya 12 SERs (special emission rights) 148 set prices 80 sharing 34, 44, 91, 119, 140 shopping 26, 80, 82–3, 104, 105, 125, 133 shops 20 local 75, 80, 82–3, 104, 105, 124, 124–5, 126, 151 see also out-of-town retailing; supermarkets short-termism 11, 13, 14–15 SIVs (structured investment vehicles) 1, 5–6, 6 skills 13, 60, 98, 100, 101, 105, 132 190 THE NEW ECONOMICS Slow Food 118, 119–20 Small is Beautiful (Schumacher, 1977) 1, 21 small islands 31–2, 33–4 small-scale banks 146 Smith, Adam 89 social auditing 26, 45, 153–4 social banks 144, 146 social capital 19, 33, 54–5, 86–7, 89, 126–7, 132 Wal-mart and 124–5 social credit 19, 58, 59, 90 social networks 36, 127, 132 social norms 67–8, 71 social relationships 34, 45 social return on investment (SROI) 45 Soros, George 51, 148 South Africa 136 South African New Economics (Sane) 58 South Shore Bank (Chicago) 144 sovereignty 55, 113 special drawing rights (SDRs) 147–8 special emission rights (SERs) 148 speculation 22, 53, 81, 82, 84, 146, 158 deterring 51–2, 60, 61 financial 7, 15, 50–1, 51–2, 61 spirituality 4–5, 18, 21–2, 75, 79, 81 SROI (social return on investment) 45 Stamp Out Poverty 61 Starkey, Richard 118 state 12–13, 28, 155 see also governments steady-state economy 43, 44 Stern Report (Stern, 2006) 155 Stiglitz, Joseph 61 stress 4, 35, 37, 83 structured investment vehicles see SIVs sub-prime loans 1, 5–7, 144 sub-Saharan Africa 82 ‘subsidiarity’ 117 subsidies 11, 82, 112, 113, 117, 119, 123–4 success 79–80, 89 measuring 2, 8, 10, 43, 44, 55, 154, 156, 158 suicides 83, 91, 140 super rich 120, 141, 142 supermarkets 80, 85, 90, 104, 105, 123–6, 129 sustainability 24, 73, 89, 113, 114, 116, 117 sustainable development 51–2, 61 Swann, Bob 120, 151 Sweden 102 Swift, Jonathan 18 Switzerland 52, 62 T-bills (Treasury bills) 49–50, 58 takeovers 84, 142, 143 talent system 58 targets 9, 41, 129 tariffs 113 tax havens 15, 52–3, 53, 61, 136, 157 Tax Justice Network 136–7 taxation 73, 92, 116 taxes 10, 15, 27, 32, 43, 62, 136–7 paid by corporations 52, 61, 137, 157 TB (tuberculosis) 130, 148 TEQs (tradeable energy quotas) 117–18 terra (currency) 56, 61, 120 Tesco 85, 116, 125 Thatcher, Margaret 21, 22, 23, 27 The Other Economic Summit see TOES Thoreau, Henry David 69 time 44, 45–6, 60, 103, 132 time banks 58, 59, 60, 89, 92, 123, 131, 132 Titmuss, Richard 65, 70 Tobin, James 51–2 Tobin Levy 51–2, 61 TOES (The Other Economic Summit) 23–5 Toffler, Alvin 88 trade 25, 81, 109–10, 111–15, 116, 148, 158 fair trade 26, 119, 145, 153 Trade-Related Aspects of Intellectual Property see TRIPS tradeable energy quotas (TEQs) 117–18 traffic speed 65–6, 74 transport 67, 74, 112, 115 see also public transport Treasury bills (T-bills) 49–50, 58 INDEX trickle down 27–8, 39–40, 138 ‘doesn’t work’ 27, 52, 104 TRIPS (Trade-Related Aspects of Intellectual Property) agreement (1995) 113, 117 tuberculosis (TB) 130, 148 Turning Point network 23 UK (United Kingdom) 4, 39, 55, 61, 70, 85, 119, 145 aid from 136 corporation tax gap 137 cultural enrichment 111 debt 83, 141 Ecological Debt Day 114 energy 102, 114 food production 96, 114 Happy Planet Index 32 ‘illth’ 4, 35 interest rates 144–5 local savings schemes 61 money deposits 136 orchard loss 111, 112, 115, 124 poverty 82 real costs of road transport 115 super-casinos 14 trade 112, 113 well-being 4, 35–6, 41, 68 working hours 68 young people in 35–6 see also house prices Ukraine 110 UN (United Nations) 39, 51–2, 60, 91, 110–11, 157 unemployment 44, 46, 55–6, 91–2, 157 unpaid work 87–9 Unto This Last (Ruskin, 1860) 18, 29 USA (United States) 39, 57, 61, 82, 113, 119, 127, 157 and Cuba 95 debt 49–50, 84, 141 Happy Planet Index 32 invasion of Iraq (2003) 49, 60 subsidies 11, 113 trade deficit 50 191 unemployment 55 well-being deteriorating 41, 68 usury 80, 81, 144–5 value 44, 98, 99 measuring 10, 15, 29, 53, 59, 115 values 11, 71, 115, 127 Vanuatu 31–2, 35, 42 Vaxjo (Sweden) 102 vegetable box schemes 104 ‘victory gardening movement’ 96 Virgil, Eclogues 110 voluntary sector 13, 87, 132, 145 voting 124–5, 127 Wal-mart 104, 123, 124–5 Wall Street Crash (1929) 1, 51, 90 Waring, Marilyn 38–9 Washington Consensus 27–8 waste 97, 100–1, 158 Waste Electrical and Electronic Equipment directive see WEEE directive wealth 18, 28, 38, 41–2, 52, 89, 141–2, 152 defining 18–19, 32, 34, 35, 38 and ‘illth’ 29, 35–6 local 14, 53–4 measuring 32, 36–40, 53–4, 143 money and 19, 32, 38, 78, 143 new economics and 3, 15, 35, 37 real 2, 32, 37–40 see also Happy Planet Index WEDGE project 23 WEEE (Waste Electrical and Electronic Equipment) directive 98, 100, 101 welfare 25, 28, 44, 127, 129, 153 Welfare State 19, 129 well-being 4–5, 25, 45–6, 99, 158 demand for 4–5, 11, 68–9 falls in 4, 37, 41, 68, 78 GDP and 4, 36, 37 measuring 4, 18, 32–3, 34, 43 money and 18, 21, 81 as motivation 4–5, 11, 68–9, 72 new economics and 41–7, 68–9 192 THE NEW ECONOMICS origins of 43 willingness to pay 99 Willington, Sally 23 Wir currency 62 Witt, Susan 151 Woking (Surrey) 102–3 women 38–9, 77–8, 79, 83, 144 work 24, 45, 81, 84–5, 86–7, 92 concept of 25, 83, 86, 87–9 to pay mortgages 46, 68, 73, 77–8, 79, 81, 83, 84, 89, 126–7, 140 of women 38–9, 77–8, 83 working hours 45–6, 78, 79, 83, 92 World Bank 27, 81, 82, 91, 137, 139, 143, 147 Yank Tanks (film, Schendel, 2002) 95 young people, UK 35–6 youth courts 129, 132 Yunus, Mohammed 143–4 Zimbabwe 32 Zurich (Switzerland) 66


pages: 87 words: 25,823

The Politics of Bitcoin: Software as Right-Wing Extremism by David Golumbia

3D printing, A Declaration of the Independence of Cyberspace, Affordable Care Act / Obamacare, bitcoin, blockchain, Burning Man, crony capitalism, cryptocurrency, currency peg, distributed ledger, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, Extropian, fiat currency, Fractional reserve banking, George Gilder, jimmy wales, litecoin, Marc Andreessen, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, new economy, obamacare, Peter Thiel, Philip Mirowski, risk tolerance, Ronald Reagan, Satoshi Nakamoto, seigniorage, Silicon Valley, Singularitarianism, smart contracts, Stewart Brand, technoutopianism, The Chicago School, Travis Kalanick, WikiLeaks

Senate Committee on Homeland Security and Governmental Affairs in part about Bitcoin and similar technologies, in which he explained that the Fed “does not have authority to directly supervise or regulate these innovations or the entities that provide them to the market.” Among the sixty-two comments made to just one brief story (Farivar 2013) reporting these hearings on the relatively levelheaded technology site Ars Technica, we find the following: The argument that fiat allows a country to avoid debasement is spurious at best given that monetary printing beyond demand either to spur economic growth, or collect seigniorage, is just like debasement in the end result’s decreasing purchasing power of nominal values. (user k2000k)[1] The Fed isn’t a part of the government. It’s a privately owned bank, the shareholders, of which, are kept secret. They have exactly zero authority on monetary policy. They impose their control over the money supply by adjusting the interest rate on loans they give to other banks. (user greevar) We entrust Congress with the power to declare war, regulate trade, raise an army with really cool weapons to blow things up, decide what we can be imprisoned or put to death for, decide what types of foods we can eat, etc. . . . but we can’t trust them with printing money.


Super Continent: The Logic of Eurasian Integration by Kent E. Calder

3D printing, air freight, Asian financial crisis, Berlin Wall, blockchain, Bretton Woods, business intelligence, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, colonial rule, Credit Default Swap, cuban missile crisis, deindustrialization, demographic transition, Deng Xiaoping, disruptive innovation, Doha Development Round, Donald Trump, energy transition, European colonialism, failed state, Fall of the Berlin Wall, Gini coefficient, housing crisis, income inequality, industrial cluster, industrial robot, interest rate swap, intermodal, Internet of things, invention of movable type, inventory management, John Markoff, liberal world order, Malacca Straits, Mikhail Gorbachev, mittelstand, money market fund, moral hazard, new economy, oil shale / tar sands, oil shock, purchasing power parity, quantitative easing, reserve currency, Ronald Reagan, seigniorage, smart cities, smart grid, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, supply-chain management, Thomas L Friedman, trade liberalization, trade route, transcontinental railway, UNCLOS, UNCLOS, union organizing, Washington Consensus, working-age population, zero-sum game

As a consequence, the US has enjoyed what Valéry Giscard d’Estaing enviously called the “exorbitant privilege” of a key-currency seigniorage that imposed only very limited fiscal constraints of Washington’s ambitious foreign policies. The United States was, as a consequence, able to intervene proactively in Korea, Vietnam, Iraq, and other hot spots across the world, confident of repaying the considerable fiscal costs involved in its own currency without going to international financial brokers, as Britain had been forced to do during the Suez crisis of 1956. Washington has enjoyed the attractive option of intervening unilaterally on a global basis, without the need in an extremity for special international consultation. This invaluable ability lies at the core of US global leadership capacity. 220 chapter 10 The seigniorage role that the US enjoys as the issuer of a key global currency also has little-recognized but crucial political-economic implications at home.


pages: 331 words: 60,536

The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State by James Dale Davidson, Rees Mogg

affirmative action, agricultural Revolution, bank run, barriers to entry, Berlin Wall, borderless world, British Empire, California gold rush, clean water, colonial rule, Columbine, compound rate of return, creative destruction, Danny Hillis, debt deflation, ending welfare as we know it, epigenetics, Fall of the Berlin Wall, falling living standards, feminist movement, financial independence, Francis Fukuyama: the end of history, full employment, George Gilder, Hernando de Soto, illegal immigration, income inequality, informal economy, information retrieval, Isaac Newton, Kevin Kelly, market clearing, Martin Wolf, Menlo Park, money: store of value / unit of account / medium of exchange, new economy, New Urbanism, Norman Macrae, offshore financial centre, Parkinson's law, pattern recognition, phenotype, price mechanism, profit maximization, rent-seeking, reserve currency, road to serfdom, Ronald Coase, Sam Peltzman, school vouchers, seigniorage, Silicon Valley, spice trade, statistical model, telepresence, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Turing machine, union organizing, very high income, Vilfredo Pareto

Governments that tax too much will simply make residence anywhere within their power a bankrupting liability. "... as the king by his perogative may make money of what matter and form he pleaseth and establish the standard of it, so may he change his money in substance and impression, and enhance or debase the value of it, or entirely decry and annul it” FROM AN ENGLISH COURT DECISION, 1604 THE DEATH OF SEIGNIORAGE Governments will not only lose their power to tax many forms of income and capital; they are also destined to lose their power of compulsion over money. In the past, megapolitical transitions have been associated with changes in the character of money. (The introduction of coinage helped launch the five-hundred-year cycle of expansion in the ancient economy that culminated with the birth of Christ and the lowest interest rates before the modern period.

Debtors will be squeezed as longterm liabilities contracted under the old system are liquidated, and concessionary credits dry up. 165 Altered by Competition Governments facing serious competition to their currency monopolies will probably seek to underprice the for-fee cybercurrencies by tightening credits and offering savers higher real yields on cash balances in national currencies. Some governments may even seek to remonetize gold as another expedient to meet competition from private currencies. They may well reason that they could gain higher seigniorage profits from a loosely controlled nineteenth-century gold standard than would be the case if they allowed their national currency to be displaced entirely by commercial cybermoney. But not all governments will respond in the same way. Those in regions where computer 'usage and Net participation are low may opt for old-fashioned hyperinflation in the early stages of the cybereconomy. This will not enable these governments to capture the cash balances of the rich, but it will wring resources from those with little wealth or access to the cybereconomy.


pages: 183 words: 17,571

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

banking crisis, banks create money, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, mobile money, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Ponzi scheme, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, seigniorage, shareholder value, Silicon Valley, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

From a bank perspective, in check-writing countries such as the United States (which accounts for the vast majority of all checks), no product generates a higher liquidity premium or more fee revenue per account. Clearing checks is the most profitable activity of the Federal Reserve System and a big moneymaker for correspondent banks. As for cash, central banks basically print the stuff for pennies per note and sell it to banks at face value. This currency monopoly of the state is called seigniorage and is worth tens of billions to governments around the world. All these things leave banks and even central banks conflicted about how much effort they should invest in trying to force the remaining paper out of the system. In part, this lack of investment commitment reflects the fact many cash services like ATMs can defend their stand-alone profitability, but the main inhibitor is that branch networks, ATMs, and physical-paper-handling logistics cannot be eliminated substantially unless cash and checks fall out of use almost entirely.


pages: 823 words: 220,581

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

"Robert Solow", accounting loophole / creative accounting, banking crisis, banks create money, barriers to entry, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, money market fund, open economy, Pareto efficiency, Paul Samuelson, place-making, Ponzi scheme, profit maximization, quantitative easing, RAND corporation, random walk, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

This then led to a simple but profound principle: ‘A true monetary economy must therefore be using a token money, which is nowadays a paper currency’ (ibid.: 3). The fact that a monetary economy uses a token – something that is intrinsically worthless – as a means of exchange implies two further key conditions ‘In order for money to exist’: b) money has to be accepted as a means of final settlement of the transaction (otherwise it would be credit and not money); c) money must not grant privileges of seigniorage to any agent making a payment. (Ibid.: 3) From this Graziani derived the insight that ‘any monetary payment must therefore be a triangular transaction, involving at least three agents, the payer, the payee, and the bank’: The only way to satisfy those three conditions is to have payments made by means of promises of a third agent, the typical third agent being nowadays a bank […] Once the payment is made, no debt and credit relationships are left between the two agents.

Chapter 14 1 Discussed in Chapter 10. 2 The nominated policy failing this time would probably be the alleged deviation from the Taylor Rule after 2001 – the case Taylor himself is already making (see Box 10.1). 3 Seppecher’s Java-based model is accessible at p.seppecher.free.fr/jamel/. 4 And they incur essentially no costs in doing so – the cost of ‘producing’ a dollar is much less than a dollar. This is the source of Graziani’s third stricture that the system can’t enable banks to exploit this opportunity for seigniorage. 5 Economists normally say ‘agents’ here rather than classes – given the microeconomic focus of neoclassical modeling, and the pejorative association that class was given by nineteenth-century politics. I use the term classes because social classes are an objective reality in capitalism, and because the SMD conditions, as Alan Kirman put it, suggest that ‘If we are to progress further we may well be forced to theorise in terms of groups who have collectively coherent behaviour […] Thus demand and expenditure functions if they are to be set against reality must be defined at some reasonably high level of aggregation.


pages: 284 words: 92,387

The Democracy Project: A History, a Crisis, a Movement by David Graeber

Bretton Woods, British Empire, corporate personhood, David Graeber, deindustrialization, dumpster diving, East Village, feminist movement, financial innovation, George Gilder, John Markoff, Lao Tzu, late fees, Occupy movement, payday loans, planetary scale, plutocrats, Plutocrats, Ralph Nader, reserve currency, Ronald Reagan, seigniorage, too big to fail, trickle-down economics, unpaid internship, We are the 99%, working poor

But as economist Giovanni Arrighi, following the great French historian Fernand Braudel, has pointed out, that’s how empires have tended to work for the last five hundred years or so: they start as industrial powers, but gradually shift to “financial” powers, with the economic vitality in the banking sector.13 What this means in practice is that the empires come to be based more and more on sheer extortion—that is, unless one really wishes to believe (as so many mainstream economists seem to want us to) that the nations of the world are sending the United States their wealth, as they did to Great Britain in the 1890s, because they are dazzled by its ingenious financial instruments. Really, the United States manages to keep cheap consumer goods flowing into the country, despite the decline of its export sector, by dint of what economists like to call “seigniorage”—which is economic jargon for “the economic advantage that accrues from being the one who gets to decide what money is.” There is a reason, I think, why most economists like to ensure such matters are shrouded in jargon that most people don’t understand. The real workings of the system are almost the exact opposite of the way they are normally presented to the public. Most public discourse on the deficit treats money as if it were some kind of preexisting, finite substance: like, say, petroleum.


pages: 312 words: 91,835

Global Inequality: A New Approach for the Age of Globalization by Branko Milanovic

"Robert Solow", Asian financial crisis, assortative mating, Berlin Wall, bitcoin, Black Swan, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, centre right, colonial exploitation, colonial rule, David Ricardo: comparative advantage, deglobalization, demographic transition, Deng Xiaoping, discovery of the americas, European colonialism, Fall of the Berlin Wall, Francis Fukuyama: the end of history, full employment, Gini coefficient, Gunnar Myrdal, income inequality, income per capita, invisible hand, labor-force participation, liberal capitalism, low skilled workers, Martin Wolf, means of production, mittelstand, moral hazard, Nash equilibrium, offshore financial centre, oil shock, open borders, Paul Samuelson, place-making, plutocrats, Plutocrats, post scarcity, post-industrial society, profit motive, purchasing power parity, Ralph Nader, Second Machine Age, seigniorage, Silicon Valley, Simon Kuznets, special economic zone, stakhanovite, trade route, transfer pricing, very high income, Vilfredo Pareto, Washington Consensus, women in the workforce

The gap is not adjusted for some characteristics like education and experience; since these tend to favor men, the “true” wage gap may be less. 9. Chancel and Piketty (2015, 31) estimate the share of CO2 emissions made by the top 10 percent of emitters (individuals) in the world at 45 percent. That assumes an income elasticity of 0.9. 10. See http://www.federalreserve.gov/faqs/currency_12773.htm. This amount is equal to almost a third of the US cash money supply in 2015. 11. In addition, these dollars provide a significant seigniorage revenue to the United States. References Acemoglu, Daron, and James Robinson. 2012. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown. Albaquerque Sant’Anna, André. 2015. “A Spectre Has Haunted the West: Did Socialism Discipline Income Inequality?” Unpublished ms. Available at https://mpra.ub.uni-muenchen.de/64756/1/MPRA_paper_64756.pdf. Alfani, Guido. 2010.


pages: 327 words: 90,542

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril by Satyajit Das

"Robert Solow", 9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Albert Einstein, Alfred Russel Wallace, Anton Chekhov, Asian financial crisis, banking crisis, Berlin Wall, bitcoin, Bretton Woods, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, disintermediation, disruptive innovation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, happiness index / gross national happiness, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, light touch regulation, liquidity trap, Long Term Capital Management, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, Mikhail Gorbachev, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, passive income, peak oil, peer-to-peer lending, pension reform, plutocrats, Plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Ronald Reagan, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, TaskRabbit, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, the payments system, The Spirit Level, Thorstein Veblen, Tim Cook: Apple, too big to fail, total factor productivity, trade route, transaction costs, uber lyft, unpaid internship, Unsafe at Any Speed, Upton Sinclair, Washington Consensus, We are the 99%, WikiLeaks, Y2K, Yom Kippur War, zero-coupon bond, zero-sum game

They can operate without conventional capital, creating reserves and printing money, but a large loss may affect their credibility, and their ability to perform functions and implement policies. Central banks earn the difference between interest received on government securities acquired and the near-zero cost of money (notes and reserves) created to pay for these purchases. As long as the current value of this future seigniorage income is greater than its liabilities, a central bank is considered solvent. Like the banks they regulate, central banks are leveraged. The US Federal Reserve has US$54 billion in capital, supporting assets of around US$4 trillion. The European Central Bank has €10 billion in capital, supporting assets of around €3 trillion. The Bank of Japan has around ¥2.7 trillion in capital, supporting assets of ¥160 trillion.


pages: 348 words: 98,757

The Trade of Queens by Charles Stross

business intelligence, call centre, illegal immigration, index card, inflation targeting, land reform, profit motive, Project for a New American Century, seigniorage

Miriam untied the knotted drawstring then thrust her hand inside. "Yep, it's the real thing." The gold brick glinted in the afternoon light; she returned it to the bag hastily. "About six kilos of twenty-three-carat. It was worth a hell of a lot a year ago—God only knows what it's worth right now." Stuck in a deflationary cycle and a liquidity crash with a revolution on top, gold—with or without seigniorage—was enormously more valuable than it had been when it was merely what the coin of the realm was made of. The national treasury had been stripped bare to pay for the war: That was what had started the crisis. She straighted up and dusted herself down. "Job number one for Alasdair is to get someone who knows what they're doing to hide this properly. We lucked out once, but sooner or later one of Erasmus's rival ministries will probably try and shake us down to see where the leverage is coming from.


The Future of Money by Bernard Lietaer

agricultural Revolution, banks create money, barriers to entry, Bretton Woods, business cycle, clean water, complexity theory, corporate raider, dematerialisation, discounted cash flows, diversification, fiat currency, financial deregulation, financial innovation, floating exchange rates, full employment, George Gilder, German hyperinflation, global reserve currency, Golden Gate Park, Howard Rheingold, informal economy, invention of the telephone, invention of writing, Lao Tzu, Mahatma Gandhi, means of production, microcredit, money: store of value / unit of account / medium of exchange, Norbert Wiener, North Sea oil, offshore financial centre, pattern recognition, post-industrial society, price stability, reserve currency, Ronald Reagan, seigniorage, Silicon Valley, South Sea Bubble, The Future of Employment, the market place, the payments system, Thomas Davenport, trade route, transaction costs, trickle-down economics, working poor

The latter's intimidating label belies the simple process it represents of enabling the banking system to create more money than the deposits it holds. The secret of ‘modern’ money The secret of creating money is being able to persuade people to accept one's IOU (a promise to pay in the future) as a medium of exchange. Whoever manages that trick can derive an income flow from the process (e.g., the medieval goldsmiths' fees, or, today, the interest on the loan that creates the money). Such income is called 'seigniorage', a word derived from the right of the Lord of the Manor (Seignior in Old French) to impose the use of his currency on his vassals. As the nation-states became the powers-that-be, a deal was struck between the governments and the banking system. The banking system obtained the right to create money as 'legal tender' in exchange for a commitment always to provide whatever funds the government needed.


The Year 1000: When Explorers Connected the World―and Globalization Began by Valerie Hansen

Admiral Zheng, agricultural Revolution, British Empire, financial innovation, Google Earth, Malacca Straits, mass immigration, polynesian navigation, seigniorage, South China Sea, trade route, transatlantic slave trade

They devised a new product made from gold that caravans could carry on their way north: blank gold coins. These were called “bald dinars,” as al-Bakri explained, “because they are of pure gold without any stamp.” Kings bought these blank coins, stamped them with inscriptions, and allowed them to circulate in their realms. Their governments profited from the difference between the higher face value of the coins and the actual value of the metal, called seigniorage. The molds used to cast such gold coins have been found in the town of Tadmekka, southeast of Taghaza and the location of the earliest Arabic-language inscriptions in Africa. Archeologists haven’t yet uncovered any shipments of gold abandoned by caravans, but one site located on the Mali-Mauritania border was an abandoned caravan shipment with one ton (.9 metric ton) of brass rods and nine pounds (4 kg) of cowrie shells.


pages: 471 words: 124,585

The Ascent of Money: A Financial History of the World by Niall Ferguson

Admiral Zheng, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, German hyperinflation, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, negative equity, Nelson Mandela, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, too big to fail, transaction costs, undersea cable, value at risk, Washington Consensus, Yom Kippur War

Much aid was disbursed to poor countries, but the greater part of it was either wasted or stolen. 58 In so far as Bretton Woods did succeed in generating new wealth by expediting the recovery of Western Europe, it could only frustrate those investors who saw the risk in excessive home bias. And, in so far as it allowed countries to subordinate monetary policy to the goal of full employment, it created potential conflicts even between options 2 and 3 of the trilemma. In the late 1960s, US public sector deficits were negligible by today’s standards, but large enough to prompt complaints from France that Washington was exploiting its reserve currency status in order to collect seigniorage from America’s foreign creditors by printing dollars, much as medieval monarchs had exploited their monopoly on minting to debase the currency. The decision of the Nixon administration to sever the final link with the gold standard (by ending gold convertibility of the dollar) sounded the death knell for Bretton Woods in 1971.59 When the Arab-Israeli War and the Arab oil embargo struck in 1973, most central banks tended to accommodate the price shock with easier credit, leading to precisely the inflationary crisis that General de Gaulle’s adviser Jacques Rueff had feared.60 With currencies floating again and offshore markets like the Eurobond market flourishing, the 1970s saw a revival of non-governmental capital export.


pages: 492 words: 141,544

Red Moon by Kim Stanley Robinson

artificial general intelligence, basic income, blockchain, Brownian motion, correlation does not imply causation, cryptocurrency, Deng Xiaoping, gig economy, Hyperloop, illegal immigration, income inequality, invisible hand, low earth orbit, Magellanic Cloud, megacity, precariat, Schrödinger's Cat, seigniorage, strong AI, Turing machine, universal basic income, zero-sum game

On the contrary, every sector of world finance seemed to be suffering except for the cryptocurrency called carboncoin, which was some kind of money created by a confirmable history of carbon drawdown or equivalent environmental actions, valid for subsistence spending only. What this virtual currency would come to in the real world no one could know, and the fact that millions of people had withdrawn their savings from normal seigniorage currencies to invest in such a murky new form of money, meaning, in the end, value and trust and exchangeability, was just another frightening destabilization to add to all the rest. That the millions of backers of this new currency were also demanding blockchain governance only added to the worries of people in power everywhere. “Do you understand this idea of blockchain governance?” Ta Shu asked John Semple at one point.


Adam Smith: Father of Economics by Jesse Norman

"Robert Solow", active measures, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

It was a work of so much expectation, by yourself, by your friends, and by your public, that I trembled for its appearance; but am now much relieved… it has depth and solidity and acuteness, and is so much illustrated by curious facts, that it must at last take the public attention.’ Yet Hume was far too fastidious not to mention several areas of friendly disagreement in passing as well, in relation to the prices of produce, seigniorage—the profits made by a government on the issuance of currency—‘and a hundred other points… fit only to be discussed in conversation’. Hugh Blair wrote at greater length two days later: ‘I expected much, yet I confess you have exceeded my expectations. One writer after another on these subjects did nothing but puzzle me. I despaired at ever arriving at clear ideas. You have given me full and complete satisfaction and my faith is fixed.’


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Hyman Minsky, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

He went on, ‘his very brilliance of exposition probably frustrated to some extent the contribution he had to make to the formation of policy; and if he had been more tender of the susceptibilities of those in high places, his wisdom would probably have brought practical advantage to this country many years earlier than it did.’ 16 Cochrane (2014), Benes and Kumhof (2012), Jackson and Dyson (2013), Kay (2009, 2015), Kotlikoff (2010), Wolf (2014). 17 As proposed by Kareken (1986) and Litan (1987). 18 Although the Chicago Plan did not envisage the separation of a bank into two parts, the implication of 100 per cent reserves is that banks could not create deposits by extending loans. In economic terms, therefore, a bank would be in effect a combination of a narrow bank and a wide bank, with no ability to mix the financing of safe and risky assets. 19 The advantage claimed by Benes and Kumhof (2012) that government debt and interest would be sharply reduced relies heavily on the assumption that seigniorage income (the profit derived from printing money) would rise because the central bank would not pay interest on reserves. That is unlikely to be sustainable if public money is to survive on the same scale as private money at present, and paying interest on reserves is a feature of a growing number of central banks for purposes of monetary management. 20 Fisher (1936b), p. 15. 21 See the discussion in Holmstrom (2015). 22 Geithner (2014), p. 508. 23 Sedgwick (1840), pp. 104–5. 24 Bulow and Klemperer (2013, 2015) have been thinking about the use of collateral in the context of reforming the capital regulation of banks and the allocation of losses when banks fail. 25 Such assets could not also be used as collateral with other creditors. 26 A more sophisticated, albeit more complicated, measure of effective liquid liabilities would be to weight liabilities by their remaining duration.


pages: 515 words: 126,820

Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World by Don Tapscott, Alex Tapscott

Airbnb, altcoin, asset-backed security, autonomous vehicles, barriers to entry, bitcoin, blockchain, Blythe Masters, Bretton Woods, business process, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, clean water, cloud computing, cognitive dissonance, commoditize, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, crowdsourcing, cryptocurrency, disintermediation, disruptive innovation, distributed ledger, Donald Trump, double entry bookkeeping, Edward Snowden, Elon Musk, Erik Brynjolfsson, Ethereum, ethereum blockchain, failed state, fiat currency, financial innovation, Firefox, first square of the chessboard, first square of the chessboard / second half of the chessboard, future of work, Galaxy Zoo, George Gilder, glass ceiling, Google bus, Hernando de Soto, income inequality, informal economy, information asymmetry, intangible asset, interest rate swap, Internet of things, Jeff Bezos, jimmy wales, Kickstarter, knowledge worker, Kodak vs Instagram, Lean Startup, litecoin, Lyft, M-Pesa, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, means of production, microcredit, mobile money, money market fund, Network effects, new economy, Oculus Rift, off grid, pattern recognition, peer-to-peer, peer-to-peer lending, peer-to-peer model, performance metric, Peter Thiel, planetary scale, Ponzi scheme, prediction markets, price mechanism, Productivity paradox, QR code, quantitative easing, ransomware, Ray Kurzweil, renewable energy credits, rent-seeking, ride hailing / ride sharing, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, seigniorage, self-driving car, sharing economy, Silicon Valley, Skype, smart contracts, smart grid, social graph, social intelligence, social software, standardized shipping container, Stephen Hawking, Steve Jobs, Steve Wozniak, Stewart Brand, supply-chain management, TaskRabbit, The Fortune at the Bottom of the Pyramid, The Nature of the Firm, The Wisdom of Crowds, transaction costs, Turing complete, Turing test, Uber and Lyft, uber lyft, unbanked and underbanked, underbanked, unorthodox policies, wealth creators, X Prize, Y2K, Zipcar

And it supports entrepreneurship and participation in global trade. That was part of Satoshi’s vision. He understood that, for people in developing economies, the situation was worse. When corrupt or incompetent bureaucrats in failed states need funding to run the government, their central banks and treasuries simply print more currency and then profit from the difference between the cost of manufacturing and the face value of the currency. That’s seigniorage. The increase in the money supply debases the currency. If the local economy really tanked—as it did in Argentina and Uruguay, and more recently in Cyprus and Greece—these central bodies could freeze the bank assets of whoever couldn’t afford a bribe. Given such a possibility, the wealthy could store their assets in more trustworthy jurisdictions and more stable currencies. But not the poor.


pages: 497 words: 153,755

The Power of Gold: The History of an Obsession by Peter L. Bernstein

Albert Einstein, Atahualpa, Bretton Woods, British Empire, business cycle, California gold rush, central bank independence, double entry bookkeeping, Edward Glaeser, Everybody Ought to Be Rich, falling living standards, financial innovation, floating exchange rates, Francisco Pizarro, German hyperinflation, Hernando de Soto, Isaac Newton, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, large denomination, liquidity trap, long peace, money: store of value / unit of account / medium of exchange, old-boy network, Paul Samuelson, price stability, profit motive, random walk, rising living standards, Ronald Reagan, seigniorage, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade route

"Le probleme de For au moyen age." Annales d'histoire economique et sociale, no. 19, January 31, pp. 1-33. Bloomfield, Arthur, 1959. Monetary Policy Under the Gold Standard, 1800-1914. Federal Reserve Bank of New York. Bonar, J., 1923. "Ricardo's Ingot Plan." Economic Journal, XXXIII, pp. 281-304. Boorstin, Daniel, ed., 1966. An American Primer. New York: Penguin Books. Bordo, Michael, 1986. "Money, Deflation and Seigniorage in the Fifteenth Century: A Review Essay." Journal of Monetary Economics, 18, no. 3, pp. 337-346. Bordo, Michael, and Tamim Bayoumi, 1999. "Getting Pegged: Comparing the 1879 and 1925 Gold Resumptions." Cambridge, MA: National Bureau of Economic Research, Working Paper 5497. Bordo, Michael, and Forrest Capie, eds., 1993. Monetary Regimes in Transition. Cambridge: Cambridge University Press.


pages: 710 words: 164,527

The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order by Benn Steil

activist fund / activist shareholder / activist investor, Albert Einstein, Asian financial crisis, banks create money, Bretton Woods, British Empire, business cycle, capital controls, Charles Lindbergh, currency manipulation / currency intervention, currency peg, deindustrialization, European colonialism, facts on the ground, fiat currency, financial independence, floating exchange rates, full employment, global reserve currency, imperial preference, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, lateral thinking, margin call, means of production, money: store of value / unit of account / medium of exchange, Monroe Doctrine, New Journalism, open economy, Paul Samuelson, Potemkin village, price mechanism, price stability, psychological pricing, reserve currency, road to serfdom, seigniorage, South China Sea, special drawing rights, The Great Moderation, the market place, trade liberalization, Works Progress Administration

White simply changed the subject, choosing to bide his time until the conference, where he could isolate Keynes and resolve the matter on his own.121 On June 28 the two butted heads once again, this time over the meaning of the critical but inscrutable terms “gold-convertible currency” and “convertible exchange,” which appeared several times in the statement of principles. The issuer of a currency considered as good as gold would potentially reap enormous benefits. Other countries would naturally want to hold vast reserves of such a currency in order to settle international payments and to act as a buffer against unforeseen financial difficulties. The issuer would, in contrast, need minimal foreign exchange reserves. It would earn “seigniorage” profits from the interest on the assets it received in return for its non-interest-bearing currency. It could, within limits, persistently buy more from abroad than it sold by simply printing money. Its firms would not suffer foreign exchange risk on the vast bulk of its trade. And finally there would be the nonquantifiable prestige associated with minting global money. Keynes understood the economic and political risks to Britain of “gold-convertible currency” coming to mean U.S. dollars, and not sterling.


pages: 1,202 words: 424,886

Stigum's Money Market, 4E by Marcia Stigum, Anthony Crescenzi

accounting loophole / creative accounting, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Black-Scholes formula, Brownian motion, business climate, buy and hold, capital controls, central bank independence, centralized clearinghouse, corporate governance, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, disintermediation, distributed generation, diversification, diversified portfolio, financial innovation, financial intermediation, fixed income, full employment, high net worth, implied volatility, income per capita, intangible asset, interest rate derivative, interest rate swap, large denomination, locking in a profit, London Interbank Offered Rate, margin call, market bubble, market clearing, market fundamentalism, money market fund, mortgage debt, Myron Scholes, offshore financial centre, paper trading, pension reform, Ponzi scheme, price mechanism, price stability, profit motive, Real Time Gross Settlement, reserve currency, risk tolerance, risk/return, seigniorage, shareholder value, short selling, technology bubble, the payments system, too big to fail, transaction costs, two-sided market, value at risk, volatility smile, yield curve, zero-coupon bond, zero-sum game

As Figure 18.3 shows, the yield pickup that could be earned by investing dollar deposits offshore instead of in the United States remained relatively high following the abolishment of U.S. capital controls in 1974, primarily because of reserve requirements on dollar deposits, which stood at 6%. This meant that U.S. banks would be willing to pay 60 basis points more for funds borrowed abroad (usually from London) to finance lending there. McCauley (2005) asserts that, “In effect, London and other offshore centers allowed central banks to avoid paying the small amount of seigniorage earned by the U.S. public sector on reservable dollar deposits. Most of the seigniorage earnings from non-residents then (and almost all of them now), however, arose from foreign holdings of U.S. banknotes, which were almost entirely in private hands.” With the yield advantage on Eurodollar deposits lasting for such a protracted period, the Eurodollar market grew sharply. Fueling its growth further was the fact that the yield cushion FIGURE 18.3 Spread between LIBID and U.S. certificate of deposit, 3-month rates (in basis points) existed at a time when world trade and international capital flows were growing sharply.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

accounting loophole / creative accounting, active measures, airline deregulation, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Big bang: deregulation of the City of London, bilateral investment treaty, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collective bargaining, continuous integration, corporate governance, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, full employment, Gini coefficient, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, Kickstarter, land reform, late capitalism, liberal capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, new economy, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, very high income, Washington Consensus, Works Progress Administration, zero-coupon bond, zero-sum game

Gold never really served fully the purpose for which it was intended under the Bretton Woods System—regulator of liquidity, enforcer of discipline. It couldn’t because of its own rigidities, and its international monetary role has been dying from natural causes, as its domestic role did.44 The international adoption of the US dollar–Treasury bill standard gave the American state distinct ‘‘seigniorage’’ advantages, as the reward for being held responsible for securing and validating confidence in the dollar. This was all the more remarkable in that this expansion of responsibilities took place even amid Watergate—perhaps the greatest crisis of the presidency in US history.45 And the results were seen as the dollar continued rising from late 1973 to early 1975 through the most serious economic crisis since the 1930s.


pages: 725 words: 221,514

Debt: The First 5,000 Years by David Graeber

Admiral Zheng, anti-communist, back-to-the-land, banks create money, Bretton Woods, British Empire, carried interest, cashless society, central bank independence, colonial rule, commoditize, corporate governance, David Graeber, delayed gratification, dematerialisation, double entry bookkeeping, financial innovation, fixed income, full employment, George Gilder, informal economy, invention of writing, invisible hand, Isaac Newton, joint-stock company, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, oil shock, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, place-making, Ponzi scheme, price stability, profit motive, reserve currency, Right to Buy, Ronald Reagan, seigniorage, sexual politics, short selling, Silicon Valley, South Sea Bubble, Thales of Miletus, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transatlantic slave trade, tulip mania, upwardly mobile, urban decay, working poor, zero-sum game

These bonds are, like all bonds, supposed to be loans that will eventually mature and be repaid, but as economist Michael Hudson, who first began observing the phenomenon in the early ’70s, noted, they never really do: To the extent that these Treasury IOUs are being built into the world’s monetary base they will not have to be repaid, but are to be rolled over indefinitely. This feature is the essence of America’s free financial ride, a tax imposed at the entire globe’s expense.13 What’s more, over time, the combined effect of low interest payments and the inflation is that these bonds actually depreciate in value—adding to the tax effect, or as I preferred to put it in the first chapter, “tribute.” Economists prefer to call it “seigniorage.” The effect, though, is that American imperial power is based on a debt that will never—can never—be repaid. Its national debt has become a promise, not just to its own people, but to the nations of the entire world, that everyone knows will not be kept. At the same time, U.S. policy was to insist that those countries relying on U.S. treasury bonds as their reserve currency behaved in exactly the opposite way as they did: observing tight money policies and scrupulously repaying their debts.