SUMÁRIO
CAP. 15 - DINHEIRO MODERNO E INFLAÇÃO
I. DINHEIRO, MERCADOS E O ESTADO
II. VISÕES CARTALISTAS E NEO-CARTALISTAS DO DINHEIRO
II.1. Dinheiro, bancos e Babilônia
II.2. Innes
II.3. Knapp
II.4. Cartalismo Moderno
III. FINANÇAS GOVERNAMENTAIS MODERNAS
IV. CRESCIMENTO, RENTABILIDADE E O NÍVEL DE PREÇOS
IV.1. A teoria da concorrência clássica estabelece apenas preços relativos
IV.2. Moeda fiduciária pura nas abordagens clássica, Monetarista, Keynesiana e pós-Keynesiana
IV.3. Níveis de preços determinados versus dependentes da trajetória
IV.4. Taxa máxima de crescimento
IV.5. O trabalho não é a restrição
IV.6. Taxa de crescimento-utilização
IV.7. Determinantes da taxa de crescimento do capital real
V. INFLAÇÃO DE DEMANDA (DEMAND-PULL)
V.1. Excesso de demanda e injeções de poder de compra
V.2. Novo poder de compra e a mudança no produto nominal
VI. RESPOSTA DA OFERTA (SUPPLY-RESPONSE)
VII. A TEORIA DA INFLAÇÃO SOB MOEDA FIDUCIÁRIA
VIII. EVIDÊNCIA EMPÍRICA
VIII.1. Estados Unidos
VIII.1.i. Crescimento no PIB nominal como uma função do poder de compra relativo novo
VIII.1.ii. Crescimento do produto real, rentabilidade, poder de compra e utilização do crescimento
VIII.1.iii. Inflação nos Estados Unidos
VIII.2. Inflação em dez países (Handfas)
VIII.3. Inflação em escala mundial
VIII.4. Argentina
IX. RESUMO E COMPARAÇÕES COM A TAXA DE DESEMPREGO NÃO ACELERADORA DA INFLAÇÃO (NAIRU)
15. MODERN MONEY AND INFLATION
15. DINHEIRO MODERNO E INFLAÇÃO
1. MARKETS, AND THE STATE
1. MERCADOS E ESTADO
1. Money arises slowly out of proper exchange, and the historical path from private money to state money is long and torturous. Exchange arises out of social interactions among humans. When and where exchange becomes sufficiently extended, its structure requires codification. Money arises as the physical expression of this need. The state did not invent money, coins, payment obligations, or debts. On the contrary, humans have repeatedly invented and reinvented exchange, money, coins, credit, banks, and even the state itself. The historical path from money-objects to coins, convertible and inconvertible tokens, bank credit, and eventually fiat money is quite complicated (chapter 5).
O dinheiro surge lentamente a partir da troca adequada, e o caminho histórico do dinheiro privado para o dinheiro estatal é longo e tortuoso. A troca surge das interações sociais entre humanos. Quando e onde a troca se torna suficientemente extensa, a sua estrutura exige codificação. O dinheiro surge como a expressão física desta necessidade. O estado não inventou o dinheiro, as moedas, as obrigações de pagamento ou as dívidas. Pelo contrário, os humanos inventaram e reinventaram repetidamente a troca, o dinheiro, as moedas, o crédito, os bancos e até mesmo o próprio estado. O caminho histórico desde os objetos-dinheiro até às moedas, fichas conversíveis e inconversíveis, crédito bancário e, eventualmente, o dinheiro fiduciário (fiat money) é bastante complicado (Capítulo 5).
2. Once money has been established, the state is impelled to expand its base beyond compulsory payments in labor and in kind, to payments in money. Governments have typically imposed poll taxes, property taxes, and taxes on commodities, import, exports, tolls, and harbors, and more recently, on income. In addition, they have resorted to sales of public lands, the ransom of prisoners, and seizures of foreign ships, goods, and treasuries. During times of war and public emergency, forced loans from the private sector were especially useful because they could be incurred at artificially low interest rates, repaid in a depreciated currency, or repudiated altogether (Morgan 1965, 17, 59, 104–105). This long historical practice serves to remind us that a debt is only a promise of repayment, which like many promises, may be broken. Sovereign default is an age-old story.
Uma vez estabelecido o dinheiro, o estado é impelido a expandir a sua base para além dos pagamentos compulsórios em trabalho e em espécie, para pagamentos em dinheiro. Os governos tipicamente impuseram impostos por cabeça (poll taxes), impostos sobre a propriedade e impostos sobre mercadorias, importação, exportação, portagens (tolls) e portos, e mais recentemente, sobre o rendimento. Além disso, recorreram à venda de terras públicas, ao resgate de prisioneiros e à apreensão de navios estrangeiros, bens e tesourarias. Durante tempos de guerra e emergência pública, os empréstimos forçados do setor privado foram especialmente úteis porque podiam ser contraídos a taxas de juro artificialmente baixas, pagos numa moeda depreciada, ou repudiados por completo (Morgan 1965, 17, 59, 104–105). Esta longa prática histórica serve para nos lembrar que uma dívida é apenas uma promessa de pagamento, que, como muitas promessas, pode ser quebrada. O incumprimento soberano (Sovereign default) é uma história antiga.
3. At some late stage in history, the state monopolizes the creation of coins and tokens. This is merely a takeover of a previously private function, and private banks continue to create the vast bulk of the medium of circulation and medium of payment. The state also comes to exercise some degree of control over banks—a control whose intrinsic limits are periodically exposed during recurrent financial crises. The general global crisis of the early twenty-first century is a stinging refutation of textbook fantasies of the Left and the Right, in which a wise and benevolent state supposedly controls money and finance for the common good. History makes it abundantly clear that all is not best in this not-best of all possible worlds.
Em alguma fase tardia da história, o estado monopoliza a criação de moedas e fichas. Esta é meramente uma tomada de posse de uma função previamente privada, e os bancos privados continuam a criar a vasta maioria do meio de circulação e do meio de pagamento. O estado também passa a exercer algum grau de controlo sobre os bancos — um controlo cujos limites intrínsecos são periodicamente expostos durante crises financeiras recorrentes. A crise global geral do início do século XXI é uma refutação contundente das fantasias dos manuais da Esquerda e da Direita, nas quais um estado sábio e benevolente supostamente controla o dinheiro e as finanças para o bem comum. A História deixa abundantemente claro que nem tudo é o melhor neste não-melhor de todos os mundos possíveis.
4. The eventual state monopoly over certain types of money is matched by its monopoly over taxation. A tax is an enforceable claim by the state on some portion of private revenues, and its payment by the private sector is a settlement of this enforced obligation. Taxes are payment obligations, but they are not “debts” any more than the protection money that restaurateurs pay the Mafia is a debt: they are promised nothing in return except a temporary suspension of threat. A debt is a transaction in which you promise to return something for something else you are about to receive: it is a repayment obligation. History reveals that tax claims are not always enforceable, and where they are, they are only enforceable only within limits. Force, or at least the threat of it, is extremely helpful but not always sufficient.
O eventual monopólio estatal sobre certos tipos de moeda é acompanhado pelo seu monopólio sobre a tributação. Um imposto é uma reivindicação executável do estado sobre alguma porção das receitas privadas, e o seu pagamento pelo setor privado é a quitação desta obrigação imposta. Impostos são obrigações de pagamento, mas não são "dívidas", da mesma forma que o dinheiro de proteção que os donos de restaurantes pagam à Máfia não é uma dívida: não lhes é prometido nada em troca, exceto uma suspensão temporária da ameaça. Uma dívida é uma transação na qual você promete devolver algo por algo que está prestes a receber: é uma obrigação de reembolso. A história revela que as reivindicações fiscais nem sempre são executáveis e, onde são, são executáveis apenas dentro de limites. A força, ou pelo menos a ameaça dela, é extremamente útil, mas nem sempre suficiente.
5. Fiat money, forced inconvertible token-money, is the characteristic form of modern money. The English colonists in North America invented fiat money precisely because the various states did not have the power to tax their easily infuriated populations. The printing of fiat money was an alternative method for financing state expenditures, paying state debts, and ultimately for funding the American Revolution itself. This creative application of the printing press was enthusiastically adopted by the French, Russian, and Chinese Revolutions, among others (Galbraith 1975, 46, 51–53, 62–66).
A moeda fiduciária (fiat money), moeda-ficha inconvertível forçada, é a forma característica da moeda moderna. Os colonos ingleses na América do Norte inventaram a moeda fiduciária precisamente porque os vários estados não tinham poder para tributar as suas populações facilmente irritáveis. A impressão de moeda fiduciária foi um método alternativo para financiar despesas estatais, pagar dívidas estatais e, em última análise, para financiar a própria Revolução Americana. Esta aplicação criativa da imprensa foi entusiasticamente adotada pelas Revoluções Francesa, Russa e Chinesa, entre outras (Galbraith 1975, 46, 51–53, 62–66).
6. Early American fiat money was backed by the promise of redemption in gold or silver, and circulated at par for some twenty years. It was also declared to be legal tender for transactions including the payment of taxes, although taxes were the one thing the states hardly dared collect.
A moeda fiduciária americana inicial era garantida pela promessa de resgate em ouro ou prata e circulou ao par por cerca de vinte anos. Ela também foi declarada curso legal para transações, incluindo o pagamento de impostos, embora os impostos fossem a única coisa que os estados dificilmente se atreviam a cobrar.
7. As more notes were issued and redemption repeatedly postponed, commodity prices specified in paper rose, as did the paper price of gold and silver. After fifty years the colonists’ paper was worth about one-tenth of their original promised value in gold (Galbraith 1975, 46–52). Nonetheless, these money tokens continued to circulate throughout.
À medida que mais notas eram emitidas e o resgate repetidamente adiado, os preços das mercadorias especificados em papel subiram, assim como o preço em papel do ouro e da prata. Após cinquenta anos, o papel dos colonos valia cerca de um décimo do seu valor original prometido em ouro (Galbraith 1975, 46–52). Não obstante, esses tokens monetários continuaram a circular por toda parte.
8. Why did these inconvertible tokens continue to circulate even after it became clear that they would never be redeemed? The history of money reminds us that private circulation gives rise to money tokens which are accepted as long as they are they are deemed able to perform certain functions as money. New coins become ghosts of themselves through the frictions of commerce. Yet these light coins continue to function alongside their heavier comrades within certain limits. Their designation by the state as legal tender within certain ranges of transactions (forced convertible tokens) can enhance their usage but cannot abolish their limits. Their acceptance is conditional on the costs of conversion, on the locality and range of their use, and of course on the continuity of the spinning wheel of commerce. At a later stage, the deposits-receipts from gold storehouses gradually begin to function as a means of payment, their approval being conditional on the trust in the bearer and in the goldsmith-banker. Still later, when fractional banking permits the issue of depositreceipts called bank notes, these money tokens are accepted because they are deemed convertible into something of a higher generality: local bank notes were accepted because they were supposedly convertible into notes of city banks, state money or gold; city bank notes because they are deemed convertible into state money and gold; and state money because it was deemed convertible into gold (directly or via foreign currency). In all of these cases, the token was backed by some money of a higher order.
Por que esses tokens inconvertíveis continuaram a circular mesmo depois de ficar claro que nunca seriam resgatados? A história do dinheiro nos lembra que a circulação privada dá origem a tokens monetários que são aceitos enquanto são considerados capazes de desempenhar certas funções como dinheiro. Moedas novas se tornam fantasmas de si mesmas devido aos atritos do comércio. No entanto, essas moedas leves continuam a funcionar ao lado de suas companheiras mais pesadas dentro de certos limites. Sua designação pelo estado como curso legal dentro de certas faixas de transações (tokens conversíveis forçados) pode aumentar seu uso, mas não pode abolir seus limites. Sua aceitação é condicional aos custos de conversão, à localidade e ao alcance de seu uso e, é claro, à continuidade da roda do comércio. Em uma fase posterior, os recibos de depósito de armazéns de ouro gradualmente começam a funcionar como meio de pagamento, sendo sua aceitação condicionada à confiança no portador e no ourives-banqueiro. Mais tarde ainda, quando o sistema bancário de reserva fracionária permite a emissão de recibos de depósito chamados notas bancárias, esses tokens monetários são aceitos porque são considerados conversíveis em algo de generalidade superior: notas bancárias locais eram aceitas porque eram supostamente conversíveis em notas de bancos urbanos, moeda estatal ou ouro; notas de bancos urbanos porque eram consideradas conversíveis em moeda estatal e ouro; e moeda estatal porque era considerada conversível em ouro (diretamente ou via moeda estrangeira). Em todos esses casos, o token era lastreado por alguma moeda de ordem superior.
9. It is crucial to understand that convertibility is a matter of faith, something which functions best when it is not tested too severely. The open secret of private and public fractional reserve banking is that most of the money is not there. One salient purpose of capitalism’s regular financial crises is to remind us of this objective fact, to suddenly reveal that a supposedly convertible token is inconvertible in practice. What this really indicates is that the promised fixed rate of exchange between a given token and money of a higher order has given way to a rapidly varying one: the thirst for city bank notes makes them more valuable in relation to local bank notes, and the thirst for gold makes it more valuable in terms of city notes, and so on.
É crucial entender que a conversibilidade é uma questão de fé, algo que funciona melhor quando não é testado de forma muito severa. O segredo aberto do sistema bancário de reserva fracionária (privado e público) é que a maior parte do dinheiro não está lá. Um propósito notável das crises financeiras regulares do capitalismo é nos lembrar desse fato objetivo, para revelar subitamente que um token supostamente conversível é, na prática, inconversível. O que isso realmente indica é que a prometida taxa de câmbio fixa entre um determinado token e a moeda de ordem superior cedeu a uma taxa rapidamente variável: a sede por notas de bancos urbanos as torna mais valiosas em relação às notas de bancos locais, e a sede por ouro o torna mais valioso em relação às notas urbanas, e assim por diante.
10. Fiat money, forced inconvertible tokens issued by the state, replaces convertibility at some pre-set rate with convertibility at a variable market rate. People accept inconvertible tokens for the same reason that they accept convertible ones: because they believe that they can continue using them as money. Convertibility and laws of legal tender enhance this conviction only as long as the economy functions reasonably well. As for the backing of paper money by “the majesty and integrity of the state,” history has shown these to be “exceedingly dubious assets” (Galbraith 1975, 46). When the wheel of circulation falters, or when inflation causes it to spin too rapidly, the belief wavers and national fiat money gets converted at escalating rates into more secure foreign currencies and into supra-national assets such as gold.
A moeda fiduciária (fiat money), tokens inconvertíveis forçados emitidos pelo estado, substitui a convertibilidade a uma taxa predefinida pela convertibilidade a uma taxa de mercado variável. As pessoas aceitam tokens inconvertíveis pela mesma razão que aceitam os conversíveis: porque acreditam que podem continuar a usá-los como dinheiro. A convertibilidade e as leis de curso legal reforçam essa convicção apenas enquanto a economia funciona razoavelmente bem. Quanto ao lastro do papel-moeda na 'majestade e integridade do estado', a história tem mostrado que estes são 'ativos extremamente duvidosos' (Galbraith 1975, 46). Quando a roda da circulação falha, ou quando a inflação a faz girar muito rapidamente, a crença vacila e a moeda fiduciária nacional é convertida, a taxas crescentes, em moedas estrangeiras mais seguras e em ativos supranacionais como o ouro.
11. From this point of view, while legal tender laws may be useful in establishing a currency, and legal restrictions on foreign currency and gold holding useful in suppressing recourse to alternatives, they cannot prevent private agents from seeking more secure monetary forms. When in the fullness of their power in 1880 the British colonial administration in Southern Nigeria sought to make British currency dominant, it took them the half-century to accomplish it. Pre-colonial Nigeria was a beehive of local production, inter-regional trade, and international trade. Markets as far away as the Caribbean, the Americas, and Europe were linked with the local producers, grafted upon the extensive regional trade. Indigenous capital markets existed, specialized bankers and moneylenders catering to merchants, and a futures market existed in the main staples of long-distance trade. Families held their savings in hoards of local currencies of manilas, brass rods, and cowries. Mexican, Peruvian, Brazilian, and Chilean dollars circulated freely alongside gold dust and gold nuggets, as well as gold and silver British, Spanish, South American, American, and French coins used for foreign remittances. In 1896, sixteen years after the British pound had been nominally established in Nigeria, the dominant currency was still the cowrie—even though “some coercion had been [applied] to encourage the local population to accept British currency” (Ofonagoro 1979, 623, 633). Unlike British currency, which was centrally minted and distributed by the colonial government, native Nigerian currencies were privately supplied, endogenous, and outside direct British control.
Deste ponto de vista, embora as leis de curso legal possam ser úteis para estabelecer uma moeda, e as restrições legais à posse de moeda estrangeira e ouro sejam úteis para suprimir o recurso a alternativas, elas não conseguem impedir que agentes privados busquem formas monetárias mais seguras. Quando no auge do seu poder, em 1880, a administração colonial britânica no sul da Nigéria procurou tornar a moeda britânica dominante, levou meio século para concretizar isso. A Nigéria pré-colonial era um foco de produção local, comércio inter-regional e comércio internacional. Mercados tão distantes quanto o Caribe, as Américas e a Europa estavam ligados aos produtores locais, enxertados no extenso comércio regional. Existiam mercados de capitais indígenas, banqueiros e agiotas especializados atendendo a comerciantes, e um mercado futuro existia nos principais produtos básicos do comércio de longa distância. As famílias mantinham suas economias em reservas de moedas locais de manilas, barras de latão e búzios (cowries). Dólares mexicanos, peruanos, brasileiros e chilenos circulavam livremente ao lado de pó de ouro e pepitas de ouro, bem como moedas de ouro e prata britânicas, espanholas, sul-americanas, americanas e francesas usadas para remessas estrangeiras. Em 1896, dezesseis anos após a libra esterlina britânica ter sido nominalmente estabelecida na Nigéria, a moeda dominante ainda era o búzio—mesmo que “alguma coerção tenha sido [aplicada] para encorajar a população local a aceitar a moeda britânica” (Ofonagoro 1979, 623, 633). Ao contrário da moeda britânica, que era centralmente cunhada e distribuída pelo governo colonial, as moedas nativas nigerianas eram supridas privadamente, endógenas e fora do controle direto britânico.
12. What is striking is that despite the huge variety of currency, trading and banking systems operating in Nigeria when the British took control, most colonial officials continued to view these same activities as forms of barter. “Thus they perpetuated the notion that currency was nonexistent in the country, and that in introducing British currency they weremerely improving a system which was previously based on barter” (Ofonagoro 1979, 636). They saw what they needed to see, they said what they need to say. The British colonial government tried repeatedly to drive out both local currencies and competing foreign ones, in the face of active and passive resistance from the population. Decrees were passed and punishments meted out to “encourage” the use of British currency. Yet “British coins were simply not regarded as money by the local population” (Ofonagoro 1979, 648). Paper money was introduced into Nigeria during World War I, and its acceptance was equally slow. In the end, it took fifty years of repeated attempts by the capitalist hegemon to finally devalue pre-indigenous Nigerian currencies and to destroy the wealth of many Nigerian families and businesses in the process.
O que é impressionante é que, apesar da enorme variedade de sistemas monetários, comerciais e bancários em operação na Nigéria quando os Britânicos assumiram o controle, a maioria dos oficiais coloniais continuou a ver essas mesmas atividades como formas de escambo. "Assim, eles perpetuaram a noção de que a moeda era inexistente no país, e que ao introduzir a moeda britânica estavam meramente melhorando um sistema que era previamente baseado no escambo" (Ofonagoro 1979, 636). Eles viam o que precisavam ver, diziam o que precisavam dizer. O governo colonial britânico tentou repetidamente expulsar tanto as moedas locais quanto as moedas estrangeiras concorrentes, diante da resistência ativa e passiva da população. Decretos foram aprovados e punições foram infligidas para "incentivar" o uso da moeda britânica. No entanto, "as moedas britânicas simplesmente não eram consideradas dinheiro pela população local" (Ofonagoro 1979, 648). O papel-moeda foi introduzido na Nigéria durante a Primeira Guerra Mundial, e sua aceitação foi igualmente lenta. No final, foram necessários cinquenta anos de repetidas tentativas pelo hegemon capitalista para finalmente desvalorizar as moedas nigerianas pré-indígenas e destruir a riqueza de muitas famílias e negócios nigerianos no processo.
13. The fiat money of the American colonists also existed alongside many other forms of money such as gold, silver, foreign coins, tobacco, and wampum. Inter-regional and international trade was present from the start. Fiat money, when it was invented, was accepted as one among a multitude of currencies. It was certainly not accepted in order to pay nonexistent taxes, or even because it was declared legal tender alongside tobacco, rice, grain, cattle, whiskey, and brandy at various points (Galbraith 1975, 48–50). Finally, in both ancient and modern times, the vitality of black market currency operations testifies to the fact that there is always an alternative to any existing currency, even if it has to be invented. For instance, after World War II in Germany the amount of papermoney was four times higher than its prewar level, while the war had greatly reduced the annual supply of goods. The incipient inflation was suppressed by price controls, which meant that the holders of commodities would have to sell them at artificially low prices. This they often refused to do. “Money practically ceased to serve as a means of payment.” Private goods were exchanged for other goods, and cigarettes rose to prominence as a widespread means of payment. Private commodity-money reappeared and displaced state-mandated money. The only remedy for this breakdown of the old currency was its replacement in 1948 by a new currency (Morgan 1965, 30–31). In the end, money functions because it is convertible in practice. If one type of money is not, another type will become so. There is no such thing as a money-of-no-escape except in textbooks.
A moeda fiduciária dos colonos americanos também coexistia com muitas outras formas de dinheiro, como ouro, prata, moedas estrangeiras, tabaco e wampum (moeda indígena). O comércio inter-regional e internacional estava presente desde o início. A moeda fiduciária, quando foi inventada, foi aceita como uma entre uma infinidade de moedas. Certamente não foi aceita para pagar impostos inexistentes, ou mesmo porque foi declarada curso legal ao lado de tabaco, arroz, grãos, gado, uísque e conhaque em vários momentos (Galbraith 1975, 48–50). Finalmente, tanto em tempos antigos quanto modernos, a vitalidade das operações cambiais do mercado negro atesta o fato de que há sempre uma alternativa a qualquer moeda existente, mesmo que tenha que ser inventada. Por exemplo, após a Segunda Guerra Mundial na Alemanha, a quantidade de papel-moeda era quatro vezes superior ao seu nível pré-guerra, enquanto a guerra havia reduzido grandemente a oferta anual de bens. A inflação incipiente foi suprimida por controles de preços, o que significava que os detentores de mercadorias teriam que vendê-las a preços artificialmente baixos. Isso eles frequentemente se recusavam a fazer. "O dinheiro praticamente deixou de servir como meio de pagamento." Bens privados eram trocados por outros bens, e os cigarros ascenderam à proeminência como um meio de pagamento generalizado. A moeda-mercadoria privada reapareceu e substituiu a moeda mandatada pelo estado. O único remédio para essa quebra da antiga moeda foi a sua substituição em 1948 por uma nova moeda (Morgan 1965, 30–31). No final, o dinheiro funciona porque é conversível na prática. Se um tipo de dinheiro não o for, outro tipo se tornará. Não existe tal coisa como uma "moeda-sem-escapatória" exceto em livros didáticos.
II. VISÕES CARTALISTAS E NEO-CARTALISTAS DO DINHEIRO
III. FINANÇAS GOVERNAMENTAIS MODERNAS
1. Fiat money potentially frees the state from its budget constraint. It successfully fueled the American, French, Chinese, and other revolutions. And it led to the failures of the corresponding national currencies. The latter events and their modern counterparts have left a deep impression on monetary theory and practice. As a result, the Treasuries of most advanced countries are now inhibited from creating money to finance the excess of their desired expenditures over incoming tax and borrowing revenues (Ritter, Silber, and Udell 2000, 347–350). This does not mean that they must first borrow or raise taxes in order to spend. On the contrary, even private agents are always able to spend funds independently of incoming revenues so long as they have a stock of money (cash, bank deposits) at hand. They can then finance their expenditures by running down this stock and replenish it through income and/or borrowing. Treasuries are the same in this regard. They fund their expenditures by drawing down their stocks at the central bank, and these stocks are replenished by revenues derived from taxes and further borrowing. Therefore, in both private and public cases, it is formally correct to say that in most cases current spending does not directly come out of current income or borrowing.
2. Individual private agents may also be able to draw upon the funds of friends, relatives, and unsuspecting strangers in order to maintain a desired lifestyle. Since this only shifts the burden, aggregate private expenditures must eventually be linked to income. Bank debt seems different, but it too is linked to current and future income. It is therefore substantively correct to say that private spending is ultimately constrained by income. This is where amodern State Treasury can be different: it happens to have a particular relative with the Midas touch, a central bank which has the ability to create money at will. In the heady early days of fiat money certain states did indeed print money “by the square yard” (Galbraith 1975, 67). Modern states have an even greater capacity, since any mandated sum can be created at the stroke of a key. The central bank can then transfer this to the Treasury by buying the latter’s newly issued bonds, thereby providing fresh funds for government expenditures. One branch of the government then creates money and “lends” it to the other branch to spend—printing money “through the back door” to finance government expenditures by monetizing government debt (Ritter, Silber, and Udell 2000, 412). It is precisely because modern Central Banks have the capacity to act as printing presses for government finance that they are often politically restrained from doing so. Hence, central banks are given an ostensibly different mandate from the Treasury (Ritter, Silber, and Udell 2000, 347–350). The history of early fiat money is has already been noted. But even modern fiat money provides ample evidence on the consequences of not heeding these limits. The fact that the central bank can finance government spending does not make such financing an automatic outcome (Ritter and Silber 1986, 215–216, 268–269). Even printing presses have governors.
3. For instance, in the late 1980s the government of Argentina found it increasingly difficult to borrow funds on the open market. The Central Bank therefore began to create money to pay the interest and then eventually even the principal owed on the outstanding debt of government (Beckerman 1995, 665–673). As the funds involved ballooned, inflation rose from 385% in 1988 to over 3,000% in 1989 before slipping back to over 2,000% in 1990 (IMF). The natural response among the citizens of Argentina was a flight to the US dollar and to gold. US dollars became the currency of choice, the real medium of safety, and the austral price of gold skyrocketed. The government in turn was forced to abandon the peg of its official exchange rate against the dollar. By 1991 the austral was re-pegged to the US dollar at a greatly reduced rate, and citizens were given the assurance that they could withdraw bank funds in dollars (at a new paltry exchange rate) if they so chose. This “dollarization” of the Argentine economy aimed to codify the existing practice and prevent further deterioration in the currency for a while. It also aimed to reassert the mandate of the Central Bank of Argentina, which was now supposed to pay attention to the effects of its powers on key monetary variables such as interest rates, exchange rates, and the inflation rate. Argentina’s subsequent current account deficits and increasingly large budget deficits once again prompted its nationals to convert pesos into dollars and send the latter abroad, leading to a run on the banks. By 2001, the economy was back in full blown crisis.
4. In the midst of the current global crisis that unfolded in 2007, the worst since the Great Depression of the 1930s, a similar issue has arisen in many nations. In the United States in May of 2009, the Federal Reserve Bank declared that it would pump an additional $1.15 trillion dollars in the economy by monetizing Treasury long-term debt. On one hand, the “Fed is living up to its commitment to do everything in its powers to deal with the crisis . . . this is effective life support . . . keeping things from getting a lot worse” (Hilsenrath 2009). On the other hand, this action was undertaken by the Fed only after a ferocious internal debate. “Richard Fisher, president of the Dallas Federal Reserve Bank . . . [and] the Fed’s leading hawk, was a fierce opponent of the original decision to buy Treasury debt, fearing that it would lead to a blurring of the line between fiscal and monetary policy—and could all too easily degenerate into Argentine-style financing of uncontrolled spending” (Evans-Pritchard 2009, emphasis added).
5. Mr. Fisher’s concerns remind us that while modern states can in principle create any indicated sum, the first restriction on such actions arises from the fact that the mandate of the central bank is different from that of the Treasury. Central bankers must always have Argentinas on their minds. Once this is recognized, then it is clear that in practice Treasuries are also budget-constrained. Within the limits of their existing stocks of funds, they can spend more than they are currently taking in. To replenish these funds, what they cannot coax from a central bank whose job it is to resist their entreaties, they must cover through additional borrowing from the private sector (bond sales) and/or additional taxes (a portion of which may arise simply from the multiplier effects of government deficits) [8]. It is here that a second set of limits arises. Borrowing from private lenders requires their consent on the terms and amounts, as the case of Argentina attests. And taxation always requires the grudging consent of taxpayers, for whom they appear as a direct reduction in disposable income. Every government knows that taxes can only be raised within certain limits, beyond which the officials held responsible run the risk of being remanded to honest labor. Finally, history clearly shows us that government spending can have inimical effects on prices, interest rates, and exchange rates. The question of how far we can go without producing such effects is one about which there is considerable, sharp disagreement.
[8]:
6. This is where the core neo-Chartalist propositions come into the picture. The standard Keynesian prescription for maintaining full employment is to pump up aggregate demand and private production to the point that the private sector employs all willing and able workers. The risk is that inflation would occur, or perhaps even accelerate, well before that point. Modern Chartalists therefore propose a different procedure to the same end. They argue that the state should directly employ all the labor which the private sector is unable to absorb, at some fixed money wage. The state as Employer of Last Resort (ELR) would thereby generate effective full employment [9]. They also claim that fixing the money wage through the ELR would create a stable anchor for the national price level, so that there would be little risk of inflation (Wray 1998, 8–9, 13, 108). The ELR is the driving force for the neo-Chartalist argument and markup pricing is its crucial hypothesis (Mehrling 2000, 400).
[9]: Marx (1967a, chapter XXV) also argues that underemployment is normal under capitalism. But in his case it is because there are internal mechanisms which actively create and re-create a pool of unemployed workers. From this point of view, ELR would serve to absorb the reserve army of labor. But in so doing, it would mitigate the competition between employed and unemployed labor, which is a crucial element in keeping the aspirations of the working class in check. In so doing, the ELR would pose a threat to the business sector by demonstrating the limits of profit-driven employment, and by removing the “discipline” that unemployment imposes on wage demands (chapter 14).
7.
