How did someone who is not an economist come to start a blog about economics, banking, finance, supply chains, and politics?
Like many weird stories, it happened by accident.
Some years ago, I ran across a set of crazy ideas known as Modern Monetary Theory, or MMT.
- Monetary sovereignty
- Currency issuer
- Currency users
- Every deficit is a surplus to someone else
- Etc, etc
I found these ideas both foreign and interesting, so I signed up for email notifications from some MMT blogs and started skimming the weird stuff they were saying.
- All money is debt
- What makes money money is tax obligations
- Anyone can issue money, the hard part is getting someone else to accept it
- Gold-backed money was never fully backed by gold anyway
- Etc, etc
Then, one day, I got a bad case of the flu, so much so that reading gave me a headache.
So I lay in bed and listened to YouTube videos that I thought were interesting.
An anthropologist (David Graeber) gave a talk about a book he had written on the history of debt.
That sounded interesting.
At some point in the video (at about 20 minutes if I recall correctly), he talks about the origin of money during the early bronze age.
And when he described why and how bronze age societies created money, all those disparent weird statements the MMT people were saying suddenly snapped into a coherent whole.
I literally sat up in bed with a “Woah! How did I never see this before?” reaction.
It appears that the economics taught by economists deviates from the reality of how humans have used debt and money throughout human history.
And, it took an anthropologist to show us.
I did finally read his book “Debt: The First 5,000 Years” in which he makes the claim that anthropologists have been telling economists for over a hundred years now that some of their basic assumptions about the invention of money have never been observed in any human society, ever.
And instead, something else has been observed that seems to have happened multiple times, independent of each other.
It seems that when various early bronze age societies, in the Middle East, China, India, and elsewhere, set out to solve the problem of how best to organize into larger societies, they co-invented money and taxes in similar ways, to achieve similar goals.
Then, sometime in the 1970s, a bond trader, looking to make better trades for his clients, noticed something weird and interesting about Italian government bonds.
He noticed he could borrow lira (the Euro had not been invented yet) at 12%, buy Italian government bonds at 14%, and take that 2% spread as profit.
The 14% interest paid on Italian treasury bonds was to compensate for the risk of default.
However, since the Italian government created lira out of thin air, how could they ever be forced to default?
How was this 2% spread not “free money”?
To make sure he understood this right, he and a more senior trader at his firm flew to Rome to meet with the Italian treasury minister, who for some reason granted the meeting.
The bond trader later reported that during the meeting, as he was asking questions of the treasury minister, the minister seemed to suddenly realize Italy could never be forced to default on any bond payment obligations.
This bond trader returned to the US and wrote up his observations about how money and banking seemed to work in the real world, independent of what economists were saying.
The bond trader is named Warren Mosler. At first, his weird ideas were called Mosler Economics. After some time it caught the attention of some academic economists and somehow became renamed Modern Monetary Theory.
Which by the way is a terrible name. Economists are terrible at marketing. MMT is neither “modern” nor “a theory”.
It is instead a description of how fiat currencies with floating exchange rates relative to other currencies, work.
And weirdly, it seems to describe how money worked back when money was first invented in the early bronze age.
After 5,000 years, the basic operations of how money works have not changed.
The realization that the MMT weirdos are right had the effect of dropping me down a rabbit hole, where the more I learned, the more things got “curiouser and curiouser” as Alice commented after she fell down hers.
So, for reasons of giving me an excuse to learn more, and as a way to make some money (I will be placing ads on this blog when traffic is higher), I started this blog.
Now, rather than simply learning stuff for my own interests, I’m working to better understand how money, banking, finance, and supply chains actually work, so I can break it down for the benefit of others who are also interested.
So why economics, banking, finance, supply chains, and economics?
Economics, banking, and finance: Trying to describe economics without taking into account how banking and finance shape the economy is futile. If you think economic models don’t need to take them into account, you’ve set yourself up to fail.
Supply chains: It’s common when talking about economics to talk as if national governments have to “find the money” to pay for stuff, but that if they are able to “find the money” there is no end to what they can buy with that money. The reality is EXACTLY the opposite. Currency issuing governments (which ARE a thing) literally create money from nothing (as do commercial banks – believe it or not) and what constrains economic growth is not their ability to create money, but the ability of the people within the economy to create more goods and services in exchange for that money.
Politics: Politics is how we create the rules for society, including the rules for how the economy works. Politics is based on stories, some of which are true, and some of which are not. What we call neoliberalism became the dominant economic structure after the post-WW2 post-Keynesian policies created both simultaneous high unemployment and high inflation. We adopted the neoliberal policies based on stories told mostly by Ronald Reagan and Margarate Thatcher, despite the fact that those stories were mostly false.
If you want a starting place, consider reading the blog post series linked to below, as well as watching the video below, which is the one that dropped me into the rabbit hole in the first place.
This is a good place to start >>>>> What is macroeconomics?