27 Jun 2012

The Dangers of the Modern Greenbacker Movement

Economics, Federal Reserve, MMT, Shameless Self-Promotion 21 Comments

Uh oh, I ask for a comeuppance by the MMTers in this new piece at The American Conservative:

Lately there has been growing interest in what might be called the modern Greenbacker movement, in homage to the historical political party. The new movement deplores the current system under which the government issues interest-bearing debt to commercial and central banks. Instead, the modern Greenbackers want the government to create new fiat money directly to cover its fiscal deficit. The movement has backing from mature authors as well as glib 12-year-olds. But there are dangers in this approach — it could be a cure worse than the disease.

BTW I know that Gary North has written extensively on this topic, but I was on a deadline and didn’t have time to sift through his critiques to properly cite him. But hey, here ya go, if you want to see an example of what I mean.

21 Responses to “The Dangers of the Modern Greenbacker Movement”

  1. Bob Roddis says:

    The MMTers’ program of taxing away inflation is about the most naïve thing I’ve ever heard. The entire “progressive” Keynesian worldview is based upon the masses being so inept that they cannot even determine their own prices and wages without help from nanny the government.

    So, in the midst of an inflationary disaster, the masses are going to vote to tax themselves in a “fair and equal” manner in order to tax away and burn what’s left of their own purchasing power DURING THE CRISIS ITSELF? Of course, we know that voters are always so insightful, wise and unselfish.

    But David Colander, a co-author of a 1980 book with the original Abba Ptachya Lerner (King of the MMTers, author of “The Economics of Control”) wrote that Lerner wanted to make it illegal to change prices without a permit in order to control inflation:

    Initially he [Lerner] toyed with various administrative wage and price control policies, but he found those lacking and soon gave them up. He replaced them, first, with a tax based incomes policy and ultimately, a market based[!!!] incomes policy in which property rights in prices are set and individuals have to buy the right to change prices from others who change their price in the opposite direction. It was this idea that formed the basis of our market anti inflation (MAP) book. (Lerner and Colander 1980) Under MAP, rights in value added prices would be tradable so that any firm wanting to change its nominal price would have to make a trade with another firm that wanted to change its nominal price in the opposite direction. Thus, by law, the average price level would be constant but relative prices would be free to change [page 12]


    I don’t think there are any differences on economics between Mises, Hayek and Rothbard like the chasm between Lerner and the rest of the MMT horde regarding dealing with the inevitable massive price inflation.

    And between Lerner and the Mike Norman types, Lerner is the realistic one. That’s saying a lot.

  2. Lord Keynes says:

    “Instead, the modern Greenbackers want the government to create new fiat money directly to cover its fiscal deficit. “

    In fact, in an MMT system, bonds would still be issued to the private sector, to control interest rates, though there might be some direct purchases by a central bank from the Treasury.

    But the system the MMTers propose really isn’t that new: under the ‘tap system’ of issuing government bonds after WWII, a number of Western countries (like Australia) for many years actually had their central banks purchase government bonds directly when they weren’t all bought by private bondholders, then passed on when private demand rose. The system is explained by Bill Mitchell of Billyblog:

    “[around 1981] the Australian Office of Financial Management was set up as a special part of the Federal Treasury to management federal debt. Previously, bond issues were made using the “tap system”, whereby the government would announce some volume of debt it wanted to issue at a particular rate and then sell whatever was demanded at that yield. Occasionally, given other rates of return in the financial markets the issue would not be fully subscribed – meaning some of the Government’s net spending would be covered in an accounting sense by central bank buying treasury bills (government lending to itself!). The neo-liberals hated this system and regarded it providing no fiscal discipline on government. They knew that by linking deficits $-for-$ with private debt they could more easily mount the debt hysteria and maximize their pressure on government to cut deficits and withdraw from the market.


    Despite what you imply, the system has clear precedents.

    • Bob Roddis says:

      That’s because average people are too stupid to set their own interest rates and need Big Nanny to do it for them. And everyone is so stupid that they would starve if Big Nanny didn’t issue debt bonds. Everyone knows that.

    • Major_Freedom says:

      “Despite what you imply, the system has clear precedents.”

      I didn’t see that “implication” anywhere.

  3. Max says:

    An oddity of the current situation is that the Fed pays more interest on its money (0.25%) than the Treasury pays on its short term bonds (<0.1%). This is by no means a secret, but for some reason nobody ever asks Bernanke why he is deliberately losing money.

    • skylien says:

      Strange right? Ironically on the one hand Bernanke wants that banks are lending, yet on the other hand he makes quite sure that they won’t. So why is he doing it?

      What sense does it make to increase the base money supply but contain it within the FED system? A very primitive answer is special interest. I am sure Bernanke would never do this, but a very wicked man could theoretically grant special favors and bail out cronies and the government without causing a stir outright that way because of some nasty side effects… Never mind, just a stupid thought though.

      • Max says:

        It should be a scandal, but the topic just puts people to sleep. Bank reserves…zzzzz….

  4. Lord Keynes says:

    I have just read your article “The Follies of the Modern Greenbacker Movement,” The American Conservative, June 27, 2012.

    You tout it above as some kind of serious critique of MMT (“I ask for a comeuppance by the MMTers in this new piece at The American Conservative”, you say).

    Yet virtually the whole article is an attack on people you call “Greenbackers,” like Ellen Brown of Webofdebt.com or (presumably) Stephen Zarlenga of the American Monetary Institute (AMI).

    None of these people are MMTers. Let me repeat: none.

    If this is supposed to be some “refutation” of MMT, the whole article is a pointless, miserable failure, and I would direct people here to see why:


    • Bob Murphy says:

      Lord Keynes, I predicted that I would get a comeuppance from the MMT folks because of this piece. You think you just gave me a comeuppance. Hence, in your effort to refute me, you proved my prediction correct. You might look at this in case your head is spinning.

      • marris says:


      • Joseph Fetz says:


      • Ken B says:

        You keep using that word ‘comeuppance’. I don’t think it means what you think it means. Your whole point being that LK’s attempt is a failure, so you did not in fact get a comeuppance.

        • Major_Freedom says:

          I think you’re conflating an absence of being refuted with an absence of being subjected to another’s attempt at punishment.

          • Ken B says:

            So you agree with me then. Bob did not in fact get a comeuppance. So logically LK’s feeble attempt does not satisfy Bob’s actual prediction. Bob did not predict “There will be a failed attempt” he predicted “there will be a successful attempt”. Because that’s what comeuppance implies.

            • Ken B says:

              Look at it this way M_F. I am pointing out the meaning of comeuppance is narrower than Bob seems to think in his riposte. It’s like ‘counterexample’. There can be no failed counterexample to a theorem, because a failed counterexample is not actually a counterexample.

              • Bob Murphy says:

                My definition of “funny comment to leave on someone’s blog” is narrower than Ken B.’s.

                Perhaps if I had put it in quotation marks and added Ken would be OK with it.

              • Ken B says:

                Now that joke works Bob.

              • Bob Murphy says:

                I was trying to add fake ( / sarcasm) tags but WordPress keeps thinking I am adding real tags I guess (since they’re not showing up).

              • Ken B says:

                Always with the excuses eh Bob? First it’s deadpan that never comes across on a blog, now it’s sarcasm.

                It’s a poor workman who blames his tools.

    • MamMoTh says:

      Bunch of crap. A marketing device. Don’t fall for it.

      But every man needs to eat…

    • Bob Roddis says:

      I thought MMT refutes itself. My concerns about “taxing away” inflation (see above) are never addressed, nor are the MMTers’ obliviousness to the problems of knowledge in society and economic calculation.


      Like everything Keynesian, they are trying to solve a problem that does not exist while they are themselves the problem.

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