Episode 202 – Exploring the Origins of Money with Clint Ballinger

Macro N Cheese – Episode 202
Exploring the Origins of Money with Clint Ballinger
December 10, 2022

 

[00:00:03.790] – Clint Ballinger [intro/music]

We’re always dealing with an inherited system of past beliefs and past institutional structures and laws. And that’s part of the problem, obviously, is those came out of hundreds of years of practices when, basically, money hasn’t been understood.

[00:00:22.240] – Clint Ballinger [intro/music]

We, literally, cannot understand the economic system we’ve created. Literally, nobody can ever. Look at the finance press and highly educated people, and you ask anything about either the national economy or the international economy, if you ask ten different people, you’ll get ten different answers. And I guarantee most of those ten answers are going to be something about interest rates.

[00:01:35.140] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.500] – Steve Grumbine

Alright. It is Steve with Macro N Cheese. My voice is back. Barry White has left the building and I have a new guest today. This guest is Clint Ballinger. And Clint’s been on here before. He wrote a great book called “1000 Castaways”. I hope that you’ll check it out sometime. You can find it on our realprogressives.org bookshelf.

But Clint, is a little bit of an interesting bird because he came to MMT through a different angle. But then he also has a more expansive view of geopolitics and an understanding of archaeology, in particular when it comes to the origins of money and understanding the geography of money. And so I’ve been reading a lot of David Graeber lately, and it just seemed like a great fit.

And by the way, this may be a foreshadowing of something I may try and pull off in the future. I would love to have a panel with Clint and maybe Steve Keen or Michael Hudson and others to talk about David Graeber. But we’re going to talk with Clint today, and we’re going to get into the origins of money. We’re going to have a little bit of a conversation about where the origins take us and why things we do today maybe aren’t so correct with that: Clint, welcome to show, sir.

[00:03:00.270] – Clint Ballinger

Hey, Steve, great to talk to you again.

[00:03:02.470] – Grumbine

Absolutely. It’s been too long, man. It’s been way too long.

[00:03:05.920] – Ballinger

Yeah, it’s been a crazy couple of years.

[00:03:07.770] – Grumbine

Absolutely. And that’s the worst part of it. It has been a crazy couple of years. We were just talking offline. I haven’t really seen humanity since the last MMT conference, and that was a couple of years back. It’s a real challenge to see anybody. So I’m kind of trapped in my captain’s chair and hopeful that I can get out and about at some point. But in the meantime, we got this podcast.

[00:03:33.940] – Ballinger

Yeah, I love what you mentioned about Hudson and Keen. I mentioned to you before, as you know, we were talking before we started. I came into this through economic geography, actually, and I always felt like I was missing something. And the way I caught on that I was missing something was exactly Steve Keen. And then also through John T. Harvey, they were both the two first people that some light bulbs clicked on. So, yeah, that would be amazing.

[00:03:58.840] – Grumbine

Absolutely. Here recently, I’ve been reading “Debt: The First 5000 Years” again. And I think this book is very challenging to read because he says the same thing over and over. At least it seems like the same thing, only slightly differently each time. And it really produced a perspective of what money is. Money is debt. And what do these forms of debt come in?

And things that we expect from one another are a form of debt, whether it be salutes and different rites of passage or providing gifts to one another when we show up for dinner, there’s a host of things that are expectations and rules surrounding it. They’ve gone on since the dawn of time, really. And I think Graeber’s book that really kind of puts that into at least a different perspective than I walked into it.

And I know that you had done some digging around on Graeber, and I know that this was an area of great interest to you prior to his death. Rest in peace, David Graeber. But tell me a little bit about the history of money and the history of debt in particular.

[00:05:07.990] – Ballinger

Sure. The great thing that debt did is really get into the public consciousness. And this is really appropriate for what’s going on right now with crypto and all that. Modern money for 5000 years has been something that extinguishes a liability. And the reason I mentioned cryptos, that’s always been the problem with cryptos. It doesn’t inherently extinguish any kind of liability.

So it can always go back to zero. Whereas if you can extinguish a liability, then the thing is what we commonly call money. So that’s fundamental. And one of the ways we keep our thing that we call money functioning is we impose an ongoing liability. In other words, some kind of tax. So that’s key. And that’s, of course, what that got into people’s mind.

And then also being written sometime after 2008, there was everything about the private banking side as well, and all the financial instability, Minsky and so on.

[00:06:03.640] – Grumbine

So, let’s talk about the origins of money. You come from a geographic perspective, a totally different discipline, quite frankly, coming into the mix. Why don’t we start there? Explain to me what your expertise even is and how that flows into this.

[00:06:20.740] – Ballinger

Yeah, so my focus always was a big picture view of one of the fundamental questions in political economy always was the Industrial Revolution. And then why did that happen in England or Western Europe. And then that goes on to the broader question of why is material well-being distributed unequally around the world radically?

And that’s at every scale, global scale, within the country and then locally. So that’s my main interest. And that’s one of the fundamental questions of political economy in general. And I actually looked into economics departments before I knew about MMT. I looked at what was going on and it was just ridiculous, as we know. So I kept changing majors, basically, and ended up realizing economic geography is a really good way to look at it.

Because every time an economist and econometric data or political scientists or whatever does any kind of regression on real countries that’s fundamentally geographical, you’re looking at differences between this place and that place and their level of something; institutions, economic development, production, whatever. So it’s an inherently geographical question. There’s a huge body of economic geography work on that for a century.

[00:07:37.240] – Grumbine

What does it mean—when I think of geography, and maybe this is my own misunderstanding—but I’m thinking about topographical map with mountains and rivers and things of that nature, what does it mean in terms of geography as it pertains to economics?

[00:07:55.610] – Ballinger

So, we have all these indicators, statistics of any kind about GDP or amount of whatever production or any kind of measures of institutions, political systems, but they’re always distributed unequally. If they weren’t distributed unequally, there would be nothing to study. So it’s always a comparison of China, the United States, our African countries, to South America and so on.

So there’s always an inherently geographical aspect to it, and I’ll come back around to it. But there’s important emergent properties to look at, having to do with agglomeration. So you can look at these at different scales. Why was the Industrial Revolution in the UK or why the Silicon Valley exists and persists and things like that.

So agglomeration is a tendency for especially higher value added industries to all be in the same geographical area. That has important implications. So that’s some of the key questions that we think about in economic geography.

[00:08:57.260] – Grumbine

One of the most poignant aspects of this to me, and we’ve carried this through quite a few podcasts, actually, the understanding of why the Global South is being predated upon by the Global North. And the Global North has basically treated the Global South as its colony, has extracted resources, labor, energy, sustenance in general from the Global South, while leaving the Global South far behind.

And the vast majority of the emissions that create the toxic carbon footprint of the north comes from the extraction in the south. What do you suppose creates the dynamic that allows the Global North to basically treat the Global South as its colony?

[00:09:49.540] – Ballinger

Yeah, so I want to relate that, actually, to the origins of money. That’s something I’ve tried to write on recently in my blog. It’s still a work in progress, but we’re looking at the global dynamic of agglomeration in a way. So exactly the same reason that within a country you get parts of the country that develop much more than other parts.

You get that at the global level as well, especially in the modern era of lower transportation costs, better communications, and higher-value-added manufacturing that tends to all go to the same places in the world. So that’s why that’s such an important process. And it relates also to commodities and commodity trade.

So when you trade goods internationally, or even between groups, as we’ll talk about later, the country that is trading high-value manufactured goods, usually what we’d consider at the time whatever is technologically advanced, gets more of a commodity than the other way around. So dealing in commodities is always to some extent a losing proposition when it comes to trade.

And that’s a really important dynamic. And overall, I think the origins-of-money story in some ways doesn’t matter. We have modern money today and that’s what matters. But I did think there was one interesting parallel that talking about the origins of money might be relevant to some things going on today, especially now that we’ve got a major war going on that’s affecting two major commodity producing nations, Russia and Ukraine.

Everything that happened with COVID production slowdowns in China, transportation problems all over the world, all this stuff has really come back into the news. So I think it’s a good time to think about it. You have all this discussion about the status of the dollar as the main currency of trade, basically imbalances in the current accounts around the world, and you have Russia or China trying to trade in yuan or the ruble or all kinds of things like that. So, good time to talk about these issues.

[00:11:48.420] – Grumbine

So, why don’t we just jump right into that? Let’s find a starting point. Where is the best starting point to take this conversation?

[00:11:57.790] – Ballinger

Well, you wanted to talk about Graeber a little, so we can jump in there. First of all, I wanted to say I wrote a post a couple of years ago while Graeber was still alive, and I was just exploring these ideas. Great book, but his first whole third or half of the book is about myth of barter, as you know. And that’s an important topic that I’m glad people talk about.

But I also think there’s one slight misunderstanding. And I wrote the blog post in a kind of a provocative way. I was irritated about one thing, but like I said, David Graeber was alive then and I took to contact him and talk to him about it. We did briefly interchange a tiny bit about it, but sadly he passed away. So the reason that relates also, I think, to the current events as well is the idea of the origins of money and commodities.

So the lesson everyone took from that book, it was already an idea that a lot of people had, but it was really popularized, is about the myth of barter and how destructive that’s been, and a lot of people lay pretty much the entire problems we have with views towards money and austerity and some of the policies we have at the myth of barter and I just think there’s a little bit of confusion in that area.

[00:13:10.010] – Grumbine

Let’s break out a spy glass, turn the light on and let’s talk about that.

[00:13:14.740] – Ballinger

Alright. So, basically, what modern economists do that is completely absurd– have done since by the late 1800s after the marginalist revolution, the mathematical approach using utility and supply and demand– is take money completely out of the equation as we know, and they even describe that as the barter economy. So you have incredibly complex mathematical models being developed all through the 40s 50s 60s and ever more.

But they don’t discuss all the things about money that matter because, as we learned in 2008, they didn’t even have money or a banking system in their equations, basically. So that’s a huge problem, and that’s a very correct critique. And there’s, I think, some reasons they did that and they’re twofold. One is just to be mathematically tractable, they had to do that.

You just cannot capture the economy in the equations they use, and so they took out the parts that cause some problems. And it is also convenient, and I think some economists explicitly do this, others don’t; but it takes out the very things about money that a libertarian type of small government, whatever, would want to take out, which is everything that money does.

Which is organize public goods. Or else on the private side, loans for investing and production and all those parts of the economy that basically mainstream economics has nothing to say about. Not mainstream macro. So, it was convenient to do that as well for two reasons: to make their models workable and to ignore everything about money that matters, really everything about the economy that matters.

Production, public goods. So that’s how that developed in the 20th century. And they sometimes say it’s like a barter economy. But you have the guys in the 1700s talking about a myth of barter. Now you have to remember these were non-anthropologists and many people believed the world was 2000 years old back then. They had no scale of time, no understanding of archaeology or anthropology, and so they made up a story.

And that story is about the coincidence of wants and how something might emerge, money-like. And then you also had in this time period mercantilism, so the idea of the effects of trade on an economy and some big-picture kind of thing. So, then you have a reaction against that economics by Adam Smith, first, and then later Jean Baptiste, Ricardo, John Stuart Mill, all these guys hated mercantilism, as you know.

And so they wanted to take money out of the equation because they hated mercantilism. And that was a lot of their motivation and then you move on from them to the beginnings of marginalism with Jevons, Walras and Menger and then it went on to Marshall at Cambridge. And they came up with the idea of utility, which leads on to supply and demand and all that.

And that helped film create the mathematical economics that became mainstream economics in the 20th century. Their motivation was primarily about what’s mathematically tractable. So that was a completely different move for a different reason to get money out after the marginalist revolution in the late eighteen hundreds and early 20th century.

So you have different forces going on. The thing is though, the myth of barter, what it says is that if you’re trying to trade, it’s difficult to double coincidence of wants and that you might end up with some kind of medium exchange to make that easier. So the move from trading to having something money-like is not really the issue.

The issue that modern economists did is once they had money because obviously they were writing in the 1800s and 1900s, they were deeply monetized economies by then, they ignored it and as I said for tractability, but they weren’t really saying there’s not money, for all the other reasons I said, they wanted to ignore that. But the myth of barter isn’t really the issue here.

It’s the move from knowing there’s money and ignoring all the other properties of it, which are public money. Tax credit is the way we organize public goods, everything I was just talking about in the banking system and all the effects of credit by ignoring the role of money and the paradox of thrift; savings, the way investment leads to savings, all these higher-order aspects of it.

That’s what modern economics ignored. So that’s the problem. Regardless of how you get it, once you have some kind of basic monetary unit, everything that comes after that in a monetary production economy is what got ignored. And that’s hugely important to focus on.

[00:18:24.410] – Grumbine

We have this weird dichotomy, we’ve got a lot of folks out there that are trying to push for a moneyless society. And I’m not here to say that a moneyed society is the only way the world can operate. But what is money? It’s really more of a token that is used to exchange, that represents something else. It’s not in and of itself the thing that is of value. Similar to the concept of the ticket to the concert. What are you actually paying for?

[00:18:58.460] – Ballinger

Right.

[00:18:59.040] – Grumbine

You’re paying for the event, paying for the piece of paper. And I think people really get this wrong and it has had horrible impacts on our ability to do anything in society with people believing about the value of the dollar and they’re really stuck in a commodity mindset. So you’ve got the commodity mindset, the gold bugs, and then you’ve got people that think that we can just do away with money and somehow their society will organize spontaneously without money.

And I don’t think either one of them get this correct. Everybody gets this stuff wrong. Not a single politician says it correctly. The Fed doesn’t even talk about it correctly, even though they’re the ones that drive the ship. Using Clara Matte’s terminology, the trinity of austerity, they’ve baked in with institutional knowledge, like raise interest rates when we have inflation, make sure we lay people off.

So all these things that they just do reflexively because it’s institutionalized knowledge no longer in the political debate. And we know that everything they’re saying is absolutely fabricated and wrong. So what exactly is it that a knowledge of money and really understanding debunking, the myth of Barter and also these other schools that I talk about that we’re not getting right, that prevents us from taking bold steps moving forward?

[00:20:27.640] – Ballinger

Well, the myth of Barter has been popularized, and rightly so. The whole argument, the commodity idea of money, completely misleads the public still. All of us, I think even the ones of us who are aware of it. It’s so easy to get into this commodity idea of money. So the fundamental thing is that it’s property rights all the way down. And I’ll expand on that. But it’s accounts.

Mosler is always talking about debits and credits. It’s all accounts, modern money, and it has been for a long time, of course. So that’s key. And that’s where I’m trying to split a fine hair here by saying why commodities matter. In some ways with the modern economy, as we’re seeing, it’s always back to the real economy, the real things, real production, real goods, real services, material well-being.

But it’s property rights all the way down. Every account in the world is property rights and everything is accounts. So that’s why, on the one hand, I totally am saying that this commodity view of money is completely wrong and misleading. And that’s why it’s really important to understand that we’re trying to get the people who vote to understand that it doesn’t work the way they think it does.

It’s not commodities moving around like gold coins that the government has to tax, but at the same time, there’s property rights all the way down. And I have this brief story about that. I’ll mention in a minute how profound I think that is to understand. As far as the origins of money, though, basically, Graeber talked about how everything is within a group culture.

You have things like kinship rituals, status, reciprocity and all these things within a group for the origins of money. And he goes on about that all through the beginning of the book and I think that’s totally correct. The only thing is, I don’t think that’s where the origins of money come from. I hate the word money.

Commodity exchange would have come when very early groups, we’re talking well before the Sumerian time period. He’s talking about thousands of years before. You have these nascent, emerging, groups all throughout southwest Asia, or what we call the Middle East, often starting to come into contact with each other as their populations grow and their polities become more complex, having some contact with each other.

And so they would have exchanged goods. Karl Polanyi and everyone else is totally on board with this. I can read you some quotes from Polanyi about it. But they would have had some kind of units that probably would have been related to their customary size of the basket they wove, the size of the pots they made, whatever.

Possibly physiological, we know that sometimes they measured later in Sumeria how much barley, basically beer— they were drinking a weak beer gruel-type thing for their sustenance—how much a worker would need a day. So that’s a measure. So at some point with obsidian or barley or some real kind of commodity good, they would have had some kind of agreed-on way of exchanging with people outside—out groups—on people that they’re in-group rituals would be irrelevant to, and that would be how you would move to some kind of commodity exchange.

And as people who know me know, I never say money—say exactly what you mean every time. So you have some kind of commodity exchange with some kind of unit, but basically a unit of accounting, as we know, the earliest writing was accounting. And this gives you a formal asset. You can’t have formal liabilities without a formal asset.

And then at a very early stage you have early polities start taxing, but they were taxing in a commodity. So, yes, you have a tax and then a tax credit. We have to remember they weren’t taxing an abstract tax credit like we do now. At first you had to have something meaningful attached to that idea. So they were taxing commodities. So now you have a tax system that’s taxing commodities.

We know they taxed in barley, for example. So now what do you have? You have a type of commodity exchange going on with a tax system. And once you tax the good, you have a tax credit, but the tax credit is also a commodity. So you have these two things mixed. And then the third thing of money is credit. And once you have formal units, formal assets, you can have formal liabilities.

Eventually you get some kind of proto-banking and stuff in the Roman times and then it really takes off in the early modern age, thousands of years later. So you have these three things super-intertwined from the very beginning. Credit, commodity exchange, and tax. And with a tax credit. So you can’t ever really differentiate those. But the only thing I was critical of Graeber is just his story focusing on in-,group exchange to disprove the myth of barter.

At some point, maybe more than 5000 years ago, maybe 20,000 years ago, 30,000, however long you want to go back, people with out-groups were probably exchanging in some kind of agreed, shared-measure units of account of some kind of commodity. And so you would have commodity exchange as a fundamental part of that process of getting units of account.

That’s the only criticism I have. It’s really not a big deal. Everything I said earlier, that’s the problem. Once, however, this trinity of credit, tax and commodity-exchange units developed over thousands of years, and you do get what we properly conceive of as money, then you have to start thinking about all these later issues—which are the paradox of thrift, finance in all these different forms, and all these other aspects.

And that’s what mainstream economists ignored that’s so crucial that we get. So that was my only critique of Graeber, and it comes from studying my specialty was Sumerian and even older, the origins of agriculture and really, really old stuff. We’re talking 8-9000 BC, that time period. So predating Sumeria, even.

[00:26:35.360] – Intermission

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[00:27:26.290] – Grumbine

Wow. And that’s where Hudson spends a lot of his time, when he describes debt and understanding jubilees. And so much of the history of money that he describes comes exactly from that time period. When we talk about Modern Monetary Theory, a lot of people try to make it more than it is, and there are some that try to make it less than it is.

I like the way Bill Mitchell says it, because I think it’s valuable. MMT is not the theory of everything, and I think people, to some degree myself even, have found themselves using MMT as the analytical framework for political economy. And in reality, MMT does provide a lens from which to assess everything.

But it is not the theory of all things. From your perspective, coming from the school of thought and your expertise that you got your PhD credentials in, where does MMT end and where do other things begin?

[00:28:32.140] – Ballinger

That’s what the key is, mainstream economists cannot get anything right if they don’t understand MMT, or basically, that we run on a tax credit system. But MMT never tried to explain everything. They get the institutional aspects right, which is huge, and we need to understand the details of Fed, treasury operations and so on.

And they get the reserve accounting and that aspect right. So you have to know that to even start. So MMT is massively important because that was exactly the thing that was getting ignored, a lot of that, and Post-Keynesianism in general. But there is, of course, so much more that we have to know about production, think about agglomeration that I was talking about, other aspects of the economy.

So there’s a lot of other stuff as well. Everything involved with liquidity preference and hierarchy of money internationally and so on. So there’s a lot of other issues. So basically with MMT you get some fundamentals right and then you can look at other issues, and without MMT you’re going to get everything wrong. You can’t even start to get things right if you don’t understand the basic system we have.

[00:29:43.840] – Grumbine

I like the way Rohan Grey talks about this, that money is a creation of law. Basically there is no “free markets,” because governments create the markets, and because governments are the currency issuers. And within that sphere, we start beginning to have a breakdown in understanding because libertarian, like-minded people want to see private money.

Milton Friedman famously said that inflation is first and always a monetary problem. It’s always created by government spending, which we fundamentally know is not true. And Warren Mosler would tell you that the government is also the price-setter because if you understand how money gets into the economy, it’s the federal government setting prices by what it pays for out of that first dollar spent.

That first dollar spent has got a tremendous amount of privilege because they are the ones that get to decide where that money goes to next, because they’re the entry point into the private world. There is no such thing as money within the government sector. Government creates money when it spends it into existence.

What are your thoughts on the concept of the currency-issuing government as the price-setter and the relationship with those private debt-bearing institutions that basically give us loans at interest? What is your take on the government as the price setter?

[00:31:14.890] – Ballinger

Well, we always have to get back to the real economy. That’s always the fundamental thing. We make things, goods and services, and people have or use those goods and services. Money, per se—it’s all accounts—accounts are always property rights. Every account in the world is a claim on real resources in some way.

So that’s why it gets back to the very basic ideas of property rights. And that’s where you can say it’s law all the way down, everyone who writes about that. And that’s where it’s so key to get the general public to understand. And it’s not just money. It’s of course contracts and the land and everything, but it’s all law all the way down.

Every bank account, every account of any kind, debits and credits on your (Steve—”all property.”) Yeah, it’s all property rights. And that’s where you get this fundamental split because if you talk to libertarians or people who view money in the commodity way, austerity and all of these things tie into your basic beliefs about property—who has a right to what, and why?

As far as accounts, it’s all real goods and services and our government organizes public goods that can increase our material well-being. And we have a lot of production that’s not directly by the government; they tied in with our banking system. We say private. It’s not really a private banking system because they’re licensed by the state.

And the reason is kind of like copyrights. The reason we allow the financial system licenses to lend and all these things and then respect those loans legally is because it’s supposed to increase our well being. That the only reason we do it. So private loans often fund productive enterprises that increase our goods and services.

So everything about it, whether it’s direct public spending or the private banking system, is about increasing our well-being. Otherwise, there’s no purpose to it. Just like copyright law is to encourage people to create more without overdoing it. That’s why copyright disappears after a set amount of time and it becomes public domain.

It’s because there’s no more motivation for that person once they’re dead, to create. So we might as well let it be public domain and let everyone use it. Kind of the same thing with allowing banks to create credit. We do it to the extent that it’s good and no more. And when you think about it like that, then you can start thinking about our regulations for finance, which I think is key.

Obviously, in 2008, people paid attention to that, but it’s kind of settled back in the background again. A lot of our problems have to do with the way we deal with finance. Not government finance so much, but our regulations on other finance.

[00:34:00.160] – Grumbine

Before you go any further on that, I just want to touch on this because this is very important. So we have utopia, whatever that is, and it’s in this little bubble and we revere it. But in reality, when we talk about regulation and enforcement, we notice that the apparatus that is there to regulate banks and lending and the fire sector as a whole that these regulatory bodies are intentionally the near-level deep.

We’re not dealing in real regulatory frameworks and enforcement. In 2008, with the collapse, we noticed that the corruption was so deeply-baked into the system that even the veneer of control and regulatory framework was completely wiped away. And in reality, without power, without oversight, without visibility and transparency, these systems are completely corrupted.

So we have the utopia where everybody plays by the rules and that we have regulatory bodies that have enough teeth to actually enforce the laws that they’re there to create. But in reality that’s not the case. And this comes back to a bit of a power dynamic. I feel there are times where I’m living in a theatrical performance. This isn’t real because if it were, the regulatory bodies that we claim to have would be strong enough to actually enforce the laws on the books. But they’re not.

[00:35:38.660] – Ballinger

You were talking about the price level earlier. It all comes down to: our government organizes public goods, so there’s spending there, and then there’s the financial sector that has accounts that have claims on private goods as well. And it’s all about the real economy, what we produce and what we consume. And that’s where you get your price level.

At that point, supply-and-demand does have a role, and not directly, the way it’s usually said, but we have a certain amount of production in the economy, some of it’s used for public goods, some of it’s used for claims by the private sector in one way or the other. And that’s where you can balance your price level, is on those claims.

So the way to balance the price level is to have the maximum production of things that we need and balance it with the claims on those productions by different parts of our society. So it’s all about focusing on increasing production and on regulating those claims on the private side— in other words, the finance side. And right now, as you know, we think that we can regulate the economy through interest rates, through our central bank, and there’s obviously a huge amount of criticism on that.

It’s a tool that doesn’t work in the way that it’s properly thought to work. And those also are just accounts that we’re saying, some of these accounts we’re going to pay interest on and there’s no logic to it at all. So obviously public spending can affect the price level, but the other side is regulating the finance sector.

[00:37:21.860] – Grumbine

Yeah, it seems like we lack something major in that segment. And I’m going to go to a discussion I had a few weeks back with Clara Mattei. It talks about institutionalized knowledge and that things are beyond the political debate. And these are things that were done with the intention of, basically, depoliticizing austerity so that austerity just seemed like it was the natural outcome of sound economics.

To raise interest rates when there’s inflation, to lay people off, and to, literally, cut the spigot off. So, these things are not things that are really debated with knowledge. They’re usually kept as institutionalized truths, even though they’re false, that they act upon without any kind of debate. They just act upon it as if, of course, this is what we do. How do things become institutionalized like that?

[00:38:20.360] – Ballinger

Well, yeah, we’re always dealing with an inherited system of past beliefs and past institutional structures and laws. And that’s part of the problem, obviously, is those came out of hundreds of years of practices when, basically, money hasn’t been understood. I’ve written about it before. I think we’re at an exciting time where that’s what’s so important about understanding that tax credit is the basis of our unit of account.

We can finally do away with some of these practices and look at what really matters. So, one of the biggest ones is there’s never any reason whatsoever to pay interest on the tax credit. So, the dollar in the US is the tax credit and we think that the central bank paying interest on saved dollars, what we call treasuries, is somehow useful.

And, actually, that just creates massive distortion in the economy. If you look at the finance press and mainstream economics, the amount of papers that have something to do with interest rates is just mindboggling. It’s a huge percentage of what people are studying. And the complexity of the economy, even without interest rates, is massive.

All the companies, corporate structures, tax law, what the government public goods are trying to organize, what the private sector is trying to produce, international trade, it’s mindboggling already. And when you add in on that the gratuitous vestigial practice of paying interest on saved money, saved tax credits, that creates a massive distortion on top of everything else.

You’ve added a whole other layer of complexity. So part of the basic understanding of MMT is realizing we don’t need to do that at all. If you had all the people that are studying some aspect of what interest rates do on the economy, studying production, studying public goods, writing about all the things that really matter for the real resources, we would understand things much better.

The other thing is interest rates at the international level, you have developing economies who have currencies that aren’t highly valued within the hierarchy of currencies in the world. What do they do? One of the primary traditional pieces of advice is raise your interest rates. In other words, pay people money to want your money.

And that creates incredible distortions in the international market. And, then on top of that, we allow the complex financial instruments that don’t serve any useful purpose. And you’ve looked at international trade some and international finance, it gets incredibly complicated very, very quickly. And, so, part of what I’m saying is that we, literally, cannot understand the economic system we’ve created.

Literally. Nobody can, ever. Look at the finance press of highly educated people and you ask anything about either the national economy or the international economy, if you ask ten different people, you’ll get ten different answers. And I guarantee most of those ten answers are going to be something about interest rates. So, that whole layer of complexity needs to be taken out.

Everything that balances our production and our public goods and our private production and our consumption has to do with what the government organizes as public goods and what the actual producers are producing. And those are where we need to get our laws and institutions and regulations straight to make that balance. And that’s where your price level comes in as well.

[00:41:39.710] – Grumbine

Got you. So, when I look at the government building markets, basically, government by issuing these tax credits allows itself the opportunity to provision itself. The debt obligation to pay taxes in the government that you live in or under, its unit of account, and in building markets and creating the space that you spoke of, what do you feel the implications are of that, in terms of building a modern economy that allows us to mitigate climate crisis and to develop more egalitarian systems, so that vast wealth accumulation does not disrupt democracy and doesn’t, in essence, flip the world on its head, placing the desires of big business and moneyed interests in general?

How do we bring that concept of money into that picture to make those things the way we want them? Given where we are at this moment, I’ve never seen it worse. How do you see us developing this framework going forward? How would you talk to a regular person that doesn’t have a PhD? This is the key insight you need to pay attention to if your interests are building equality into society and mitigating climate crisis and developing a global perspective of citizenship. How might you advise someone?

[00:43:12.260] – Ballinger

Well, I like to start with a group of people. If you were a small group of people, you would want to do some things in common and some things that benefit you that individuals couldn’t do. So, you organize. Those would be public goods. So, I think we would all recognize that a small group of people, that’s why I start with the island in the book, you might want to all get together and dig a well or build a road or anything.

And if you notice, most of these things have to do often with networks. For example, there are various aspects of network theory of why networks will pretty much always be a public good. Whether it’s a rail system or communication network or electrical grid. And we usually more or less recognize that in utilities.

As you scale up, though, to thousands and millions and many millions of people, you need a system that can organize. You can’t say, hey, John, dig that hole and Bob, do this, and so on and so forth. So, you create this tax credit where it moves things from the private sector to the public sector and our government, us, the group of people, organize the public goods using that as a tool.

And that’s all it is. Sometimes some MMT people go too far, think the taxes don’t matter. Of course, they matter. That’s the demand for the tax credit and we use that as a system for public goods. And, then, we recognize, though, that there’s private production. We allow incorporation laws for groups of people to form their own groups that aren’t part of the larger group to make things, and we allow an incentive for that profits and protect banks and bank accounts so that people can have the benefits of money, which is basically for uncertainty.

You want to save money for an uncertain future and you create a legal structure for markets and finance that incentivizes production. And it’s a well-being thing to allow certainty so people can save money. We legally protect people’s deeds to land and houses and things like that. And all of that is to increase the wellbeing. So, that’s your two sectors—your public goods and your legally-protected private sector.

The key point here is, when I say it’s all property rights, is every deed and every bank account that we’re having ourselves, our government protect those things legally by saying somebody can’t legally empty your bank account. We deeded you that land. Nobody else can come build their house on that land. And we do that to the extent that it improves the well-being for everybody.

When those institutions and rights become detrimental to society, that’s when we should regulate them. And Elon Musk is in the news a lot. The billionaires are a lot in the news lately. We shouldn’t legally recognize a claim on material goods, real resources in the economy, that an account that has billions, as we know it’s not really one single bank account.

But we’re allowing these people to have property rights beyond what serves any benefit to society. So, that’s regulation. And once again, I also think that gets back to the price level. Because when you regulate these claims on real resources properly on the private side, as well as organizing the public side in a way that increases production, so, good infrastructure, good transportation and all that, then you are going to end up with a good price level matched to your account, the tax credit.

[00:46:34.390] – Grumbine

Very good. What would you say is your key takeaway from this conversation? If you were a listener and you heard this podcast, what do you think would be the most important encapsulation that you would like them to take away?

[00:46:48.960] – Ballinger

I think the point I made earlier about everything as property rights, we really have to think about that. Accounts are always a claim on real resources and balancing our production and our public goods in a way that helps with material well-being. We haven’t even gotten, as time has flown by, to the international sector I wanted to talk about because I was going to bring that back to commodities.

That’s one area where thinking about money, the origins of money, could relate to some of the aspects of the international economy and how some of these questions relate to developing countries.

[00:47:23.170] – Grumbine

Do that, then let’s take it there.

[00:47:25.460] – Ballinger

Well, the international sector, you have some countries with a great deal of material well being in some developing countries that don’t that have a lot more resource problems. So, I thought that tied back in. When we think about exchange, you have the international hierarchy of currencies. You have countries borrowing.

It kind of gets into the debates about—[Zoltan] Pozsar has been talking about lately as well—about, basically, what do we do about some of the poorest areas in the world. I think that would end up being a whole other show, though. I think we spent almost a whole hour here talking about other things.

[00:48:05.970] – Grumbine

And that’s fine. You will always have a carte blanche invitation to come back and do a part two. We’ve been around for over four years. It’s hard to believe, but we have not missed a single week of releasing a new podcast every Saturday morning at 8 AM, very proud of that.

[00:48:23.250] – Ballinger

Well, Fadhel’s work, basically, I would say he’s got it right. So, he’s taking the MMT perspective onto the international developing country level. So, a good summary is just saying he’s got all the details right. He’s bringing in the ideas of production and real resources.

[00:48:38.890] – Grumbine

He’s got the goods. He definitely has the goods. And you’ve got the goods too, Clint. So, thank you so much for joining me today. Why don’t you let everybody know where we can find more of your work?

[00:48:49.460] – Ballinger

Oh, right now I’m blogging at clintballinger.com occasionally. I only write when I feel like I have something. I’ve been working on trying to link some of these ideas to some of the international aspects that’s been in the news. And then, of course, the book is available, 1000 Castaways, anywhere. Well, it’s good talking to you. We’ll have to get back to these other issues because it seems like we’re just getting started.

[00:49:12.750] – Grumbine

We were and time flies when you’re having fun. Thank you so much for your time and look forward to talking to you in the future. My name is Steve Grumbine. This is Macro N Cheese. My guest, Clint Ballinger. We are out of here.

[00:49:52.360] – End credits

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts, and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.