On the nature of money and democracy

– Matt Stoller

1. Ok, a quick thread on what I think was a very significant ideological fight that happened last week. The dispute was over something known as PayGo and while it appeared to concern boring government budgeting questions, it is actually about the nature of money and democracy

2. Money is a very weird thing. It is at heart a commodity that a group agrees is a medium of exchange. What gives money value is both a collective belief it does, and an enforcement trigger, ie taxing authority. Dollars have value bc the U.S. gov’t collects taxes in dollars.

3. The value of money is essentially the amount of money in circulation versus how much stuff the economy produces. If you have a bigger economy you need more money to match that increased trade. Money is permission to use resources, the more resources the more money you need.

4. There are two ways to print money. Banks print money every time they make a loan. That’s private money creation. And the government prints money when it runs a deficit (when it spends more than it taxes.) To simplify, both the government and Wall Street can print money

5. America has a long and contested history over who gets to create money. Benjamin Franklin was a strong proponent of paper money printed by the states. The rich hated Franklin for it. States would print money by creating public land banks and lending it against farm mortgages.

6. The founding era was rife with monetary debates. Alexander Hamilton sought to place money creation power in private hands, hence he’s the founder of Wall Street. William Hogeland´s Founding Finance is about this. So is Terry Bouton’s Taming Democracy.

7. ‘The Democracy’ was something of an epithet in the 1790s, a sort of radical term similar in some ways to Communist in the 1950s. The founding of the Democratic-republican Party was a response to Hamilton’s creation of Wall Street in the form of a privately owned national bank. …



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