The Right to a Job

[Dylan Lawrence Moore]

My understanding on this is flaky; enlighten me if you're able. Under the current US system, my current understanding is that private banks also have the power to create currency through fractional reserve lending (under the dictate of the government, of course).

 

I see the point that in a system where money is initially created by "borrowing" it from the Federal Reserve, the total amount of money available must be equal to the amount of debt "owed" back in taxes. Under this I totally see your "right to a government job" point.

 

However, when you add fractional reserve banking into the mix, the private sector, once it is able to get its hands on money distributed to government employees and contractors, is able to further create money. This is where my understanding is gathering friction with the new information I'm getting from you and what you're posting; why is the total amount of money equal to the national deficit if private banks have a hand in creating money? And, if there is a "private sector method" of creating government money, wouldn't that affect the "right to a job" idea you've proposed?

[virtue]

Ah ok nice, very cool!

 

This is a post I wrote that Steve Keen himself promoted to peers because he liked it so much:

 

https://www.economicsjunkie.com/modern-monetary-theory/

 

Now I wish I read that article before watching Keen's presentations. Love the clear conclusions.

 

I'm still wrapping my head around the banking system and the economy. I saw that Steve made a virtual (computer) model of the economy which he run live. I was in awe for a while that someone can do this and show the degree to which the economy is predictable. I gotta tell you, I want get my hands on that model, learn it, learn the principles and math behind it, and play with it.

 

I guess once you get over the "magic" or rather how money comes out of nothing and disappears into nothing, and the misconceptions we've been fed, it's quite easy to comprehend the whole thing.

 

Not to mention this knowledge has given me a new perspective on government and politics - and in sense shine light on the good guys and the bad guys.

 

What books would you recommend, especially for a beginner to learn more about MMT? What's the best place to start?

[virtue]

...why is the total amount of money equal to the national deficit if private banks have a hand in creating money?

 

I'm no expert on this either... but if the fed creates $100 (the first $100), and you assume it all ends up in private banks, and you know the fractional reserve requirement (say $10 or 10%), then you know exactly the maximum money the banks (all of them) can create on the initial $100.

 

90 + 81 + 72.9 + 65.61..+ = $899.99

 

Of course, this assumes the banks can only create money based on the fractional reserve. As far as I understand, when you buy a house, the bank creates the money out of nothing (it's not based on the fractional reserve).

 

Even if the banks only create money based on the fractional reserve, your question is still valid... how does the fed know the national debt, at any given moment, given that people might not borrow all of the $899.99 in our example. What if only 4 people borrow money from the bank? That means (in our example) the national debt is only $309.51 and not the maximum $899.99.

 

If all the money was deposited and created in one private bank, which is not the case, how does the fed learn of the bank's books to update the nation debt?

[Dylan Lawrence Moore]

 

Even if the banks only create money based on the fractional reserve, your question is still valid... how does the fed know the national debt, at any given moment, given that people might not borrow all of the $899.99 in our example. What if only 4 people borrow money from the bank? That means (in our example) the national debt is only $309.51 and not the maximum $899.99.

 

 

My question also includes: in this example, why would the national deficit be anything over $100? If the first $100 is created by the government via the Federal Reserve (i.e. the government "borrows" it from the Fed), I can see how this $100 is deficit.

 

However, if all that $100 makes it to a private bank and they loan out $1 to $799.99, because they have a hand in the creation of money (via government dictate), how is that extra $1 to $799 part of the national deficit? Obviously it creates a deficit from the borrower to the private bank, but not the system as a whole back to the government/Fed.

 

At least, that's what I think. I'm waiting for Nima to tell me that the private banking sector's creation of money is still done through the Fed and creates a national deficit the same way as directly through the government.

[Nima]

My understanding on this is flaky; enlighten me if you're able. Under the current US system, my current understanding is that private banks also have the power to create currency through fractional reserve lending (under the dictate of the government, of course).

 

I see the point that in a system where money is initially created by "borrowing" it from the Federal Reserve, the total amount of money available must be equal to the amount of debt "owed" back in taxes. Under this I totally see your "right to a government job" point.

 

However, when you add fractional reserve banking into the mix, the private sector, once it is able to get its hands on money distributed to government employees and contractors, is able to further create money. This is where my understanding is gathering friction with the new information I'm getting from you and what you're posting; why is the total amount of money equal to the national deficit if private banks have a hand in creating money? And, if there is a "private sector method" of creating government money, wouldn't that affect the "right to a job" idea you've proposed?

- 'My understanding on this is flaky; enlighten me if you're able. Under the current US system, my current understanding is that private banks also have the power to create currency through fractional reserve lending (under the dictate of the government, of course).'

 

This is correct: Imagine you have the power to declare a tax in a token, and spend the token into existence. It follows that people may also approach you to borrow some tokens into existence temporarily, given that they're a good medium of exchange. Banks are essentially the state's registered lending agents. The original purpose of such bank lending (and technically still its purpose), has been to allow entrepreneurs to employ people in sectors that don't produce consumer goods, but rather machinery to improve worker productivity. Since these workers still need food at the end of the day, and don't have much use for machines, they use that same money that consumer sector workers use to buy consumer goods.

 

- 'I see the point that in a system where money is initially created by "borrowing" it from the Federal Reserve, the total amount of money available must be equal to the amount of debt "owed" back in taxes. Under this I totally see your "right to a government job" point. However, when you add fractional reserve banking into the mix, the private sector, once it is able to get its hands on money distributed to government employees and contractors, is able to further create money. This is where my understanding is gathering friction with the new information I'm getting from you and what you're posting; why is the total amount of money equal to the national deficit if private banks have a hand in creating money? And, if there is a "private sector method" of creating government money, wouldn't that affect the "right to a job" idea you've proposed?'

 

Great point. The crux here is that private bank lending doesn't generate net private saving. The private sector's net position doesn't change when a private bank makes a loan: The borrower receives an asset (a checking account markup, which is a claim on bank reserves), but also incurs a liability (repayment plus interest). Conversely, the bank receives an asset (a loan on its books, owed to it), and incurs a liability (the borrower's checking account markup, which is a promise on the bank's part to convert into bank reserves or cash at any time). Note I didn't say money itself was the critical item to look at, but rather net private saving. The only way the private sector can incur net saving is either a government deficit, or an export surplus.

Now I wish I read that article before watching Keen's presentations. Love the clear conclusions.

 

I'm still wrapping my head around the banking system and the economy. I saw that Steve made a virtual (computer) model of the economy which he run live. I was in awe for a while that someone can do this and show the degree to which the economy is predictable. I gotta tell you, I want get my hands on that model, learn it, learn the principles and math behind it, and play with it.

 

I guess once you get over the "magic" or rather how money comes out of nothing and disappears into nothing, and the misconceptions we've been fed, it's quite easy to comprehend the whole thing.

 

Not to mention this knowledge has given me a new perspective on government and politics - and in sense shine light on the good guys and the bad guys.

 

What books would you recommend, especially for a beginner to learn more about MMT? What's the best place to start?

I am totally with you on all of this. I've also seen this model and how he starts it and it runs for several seconds actually, and then suddenly the charts make big moves. Very impressive!

 

It's true, it's actually not that complicated once you see through the fog and confusion: You could actually implement such a fiat money system (maybe minus the cruelty of enforcing taxation violently ) at home with your kids, pay FamilyBucks for chores (public sector work), and impose a weekly tax or something like that, and offer "foreign currency" (actual $) in exchange, and the watch what effect fiscal policy (playing with spending & taxes) has on foreign exchange values.

 

I recommend this book:

 

http://neweconomicperspectives.org/modern-monetary-theory-primer.html

 

Wray also basically has a free version right at that link online, but I spent the few bucks to buy the book so I could comfortably read it on the train.

I'm no expert on this either... but if the fed creates $100 (the first $100), and you assume it all ends up in private banks, and you know the fractional reserve requirement (say $10 or 10%), then you know exactly the maximum money the banks (all of them) can create on the initial $100.

 

90 + 81 + 72.9 + 65.61..+ = $899.99

 

Of course, this assumes the banks can only create money based on the fractional reserve. As far as I understand, when you buy a house, the bank creates the money out of nothing (it's not based on the fractional reserve).

 

Even if the banks only create money based on the fractional reserve, your question is still valid... how does the fed know the national debt, at any given moment, given that people might not borrow all of the $899.99 in our example. What if only 4 people borrow money from the bank? That means (in our example) the national debt is only $309.51 and not the maximum $899.99.

 

If all the money was deposited and created in one private bank, which is not the case, how does the fed learn of the bank's books to update the nation debt?

When people say the "national debt" they usually mean the money owed by the government, independent of private sector debts. So I just want to make sure we're clear on what you mean when you use that term.

 

The national debt in that sense is just the sum total of all past government deficits minus bank reserves. A government deficit manifests itself in bank reserves left in the private sector. Then some of those bank reserves are converted into longer term assets because people like to earn interest, and the government offers interest bearing bonds (this is not mandatory by economic or natural law or anything like that, by the way, the government does it by choice or out of legal necessity). People who don't understand this are still scratching their heads why some of the the most indebted fiat governments in the world (e.g. Japan) are able to have zero or even negative interest rates.

 

So the total national debt is traditionally just the total of all government bonds in circulation. I would actually even add bank reserves to this as well, but that's just a matter of minor classification and not material. The reason is just that philosophically government bonds as well as bank reserves are a government liability. Bonds are the government's promise to pay future bank reserves. Bank reserves are the government's promise of acceptance in settling tax liabilities. (India just broke that promise by the way, essentially defaulting IMO)

At least, that's what I think. I'm waiting for Nima to tell me that the private banking sector's creation of money is still done through the Fed and creates a national deficit the same way as directly through the government.

There is a difference. Government spending in exchange for a contract job is money that ends up in private sector hands with no strings attached, and without debt attached to it.

 

Bank lending is different in that it creates an asset on the recipient's balance sheet, but also a liability because the money is owed back.

[virtue]

Thanks for the clarifications Nina.

[Dylan Lawrence Moore]

It's true, it's actually not that complicated once you see through the fog and confusion: You could actually implement such a fiat money system (maybe minus the cruelty of enforcing taxation violently ) at home with your kids, pay FamilyBucks for chores (public sector work), and impose a weekly tax or something like that, and offer "foreign currency" (actual $) in exchange, and the watch what effect fiscal policy (playing with spending & taxes) has on foreign exchange values.

 

Any ideas from the MMT world of how to give a fiat system value without using the violence of taxation?

[Nima]

Any ideas from the MMT world of how to give a fiat system value without using the violence of taxation?

Well that's a great question, and something someone in an earlier conversation gave me a hard time for confusing taxation with voluntary, even though I'm well aware that taxation cannot be voluntary.

 

But I would say that indeed it would be conceivable to have such a system where the value generating drain on the tokens can be done voluntarily. Indeed, I would argue we are observing such a system's emergence right now: Bitcoin. I'm planning on writing an article about this very topic shortly and I will be arguing that the main value driver for Bitcoin is the fact that you have to pay tx fees in bitcoins to make a transaction.

[Dylan Lawrence Moore]

But I would say that indeed it would be conceivable to have such a system where the value generating drain on the tokens can be done voluntarily. Indeed, I would argue we are observing such a system's emergence right now: Bitcoin. I'm planning on writing an article about this very topic shortly and I will be arguing that the main value driver for Bitcoin is the fact that you have to pay tx fees in bitcoins to make a transaction.

 

Funny you mention that, because I've been actually thinking the same thing. My economics knowledge is spotty so I wanted to hear from what someone deep in the mess of this stuff thought.

 

When you say tax fees on Bitcoin, are you talking about the fees that bitcoin companies charge or the fact that the government has expanded its jurisdiction to Bitcoin?

[Nima]

Funny you mention that, because I've been actually thinking the same thing. My economics knowledge is spotty so I wanted to hear from what someone deep in the mess of this stuff thought.

 

When you say tax fees on Bitcoin, are you talking about the fees that bitcoin companies charge or the fact that the government has expanded its jurisdiction to Bitcoin?

Sorry for being unclear "tx" fee refers to transaction fee. This is the fee that all users need to pay every time they make a bitcoin transaction to entice miners to include it in the next block, if that makes sense?

[Dylan Lawrence Moore]

Sorry for being unclear "tx" fee refers to transaction fee. This is the fee that all users need to pay every time they make a bitcoin transaction to entice miners to include it in the next block, if that makes sense?

 

I know about the transaction fees on bitcoin, but I don't know how it relates to the miners or how the mining works well enough to fully understand your point.

 

I think I get it enough, that the transaction fees for Bitcoin potentially serve the same purpose as taxes do in a fiat system in order to give the currency value.

 

At the risk of turning this thread into a discussion on Bitcoin, what does "entire miners to include it in the next block" mean? How do these fees get back to the miners?

[Nima]

I know about the transaction fees on bitcoin, but I don't know how it relates to the miners or how the mining works well enough to fully understand your point.

 

I think I get it enough, that the transaction fees for Bitcoin potentially serve the same purpose as taxes do in a fiat system in order to give the currency value.

 

At the risk of turning this thread into a discussion on Bitcoin, what does "entire miners to include it in the next block" mean? How do these fees get back to the miners?

Yes, you're right about the analogy between taxes and bitcoin fees.

 

A miner essentially takes the strings of a bunch of transactions sitting in the mempool, makes sure they're valid, glues them together to what's called a block, and then has to solve a puzzle to add this block to the blockchain, the permanent immutable ledger of all bitcoin transactions.

 

If he solves the puzzle his block gets added and he receives a block reward (currently 12.5 BTC) plus the sum of all transaction fees included in the transactions that he put in the block, delivered to his bitcoin address.

 

At some point in the distant future the block reward will vanish and the only source of income for miners will be the transaction fees, so they'll gain in relevance over the decades.

 

Does that make sense?

[Dylan Lawrence Moore]

I think so. One thing I want to clear up: do all transaction fees get sent back to miners? Or just in some cases?

[Nima]

I think so. One thing I want to clear up: do all transaction fees get sent back to miners? Or just in some cases?

All transaction fees for transactions that have been successfully included in a block go to the miner who mined that block.

[rosencrantz]

but if the fed creates $100 (the first $100), and you assume it all ends up in private banks, and you know the fractional reserve requirement (say $10 or 10%), then you know exactly the maximum money the banks (all of them) can create on the initial $100.

 

The money created by the Fed isn't that much compared to the money created by private banks. In the case of a mortgage, the bank takes the down payment, uses a part of that as a security at the Fed and creates money out of thin air. The role of the Fed in the economy is not so much the issuer of credit, but rather as a clearing institution for banks. Most money in circulation was loaned into existence by private banks.

[Nima]

The money created by the Fed isn't that much compared to the money created by private banks. In the case of a mortgage, the bank takes the down payment, uses a part of that as a security at the Fed and creates money out of thin air. The role of the Fed in the economy is not so much the issuer of credit, but rather as a clearing institution for banks. Most money in circulation was loaned into existence by private banks.

Yes. The Fed always completely accommodates the demand for reserves, by mathematical necessity, otherwise the interbank lending rate would break outside the bounds of the policy rate window. The amount of reserves held by banks is an after the fact outcome. It plays absolutely no role in the banks' decisions to lend. The bank decides to lend when it finds willing and able borrowers, and creates the money to do this out of thin air. If the bank is ever short of reserves as per reserve requirement, they will obtain the reserves wholesale through different venues: by offering savings accounts with interest, by borrowing on the interbank lending market, or, in last resort, from the Fed directly, and generally only against good collateral.

[Nima]

By the way, I will be on the FDR call in show tomorrow to discuss this stuff with Stef, in case anyone's interested

[Matthew Ed Moran]

By the way, I will be on the FDR call in show tomorrow to discuss this stuff with Stef, in case anyone's interested

awesome!

[Brazilda]

what is a right???

[EclecticIdealist]

what is a right???

The authority to decide and/or act.

[Nima]

what is a right???

A universally defensible claim.

[RichardY]

what is a right???

Might.

[Gavitor]

what is a right???

 

[EclecticIdealist]

A universally defensible claim.

Are scientific assertions backed by reason and evidence "Rights"?

Might.

According to the saying, Might is a justification or defense, not a right.

[shirgall]

To make things easier, please use the following definitions, or something similar:

 

right: an activity upon which infringement is forbidden (usually in the context of government, but can be extended to other authorities)

 

entitlement: a benefit earned by circumstances of social status, employment, locality, or citizenship

 

power: the ability to perform an specific activity normally forbidden to others (again, usually in the context of government)

 

The power to tax, the right to keep and bear arms, social security entitlements... these should make more sense now.

 

"Right to work" is the freedom of seeking to offer labor in exchange for value, free of any entanglements from authorities in that pursuit, and the capacity to either leave or initiate a working arrangement voluntarily on all sides of the transaction). When one performs agreed work one is entitled to the offered value (the essence of contract).

[RichardY]

Right, just seems redundant.

 

Property Rights.

Human Rights

Animal Rights.

LGBT Rights.

The Right to Self Defence.

The Right to an Atourney.

The Right to a "Fair" Trial.

The Right to "remain" silent

The Right to not be tortured or murdered

The Right to a Job.

The Right to Shine Shoes

The Right to Life.

The Right to Prima Noctis (Braveheart, if there was one thing to piss people off that might be it, though Wikipedia basically says its BS, though not been to Scotland)

Egg Sausage and Rights

Rights, Rights, Beans and Rights

[Dylan Lawrence Moore]

Bringing this back to life.