Bill Mitchell is an Emeritus Professor in Economics at the University of Newcastle in New South Wales…
… Warren and I come from totally different backgrounds, of course. I’ve come through an academic background, so I sort of work things out by looking at data and studying history and things like that. And Warren’s background was in Wall Street basically in America. He was a banker and he started the trading in the initial Chicago Futures Exchange, and so he had a sort of hands-on non-academic background. We worked out things from a totally different background. I started working it out, what’s now called Modern Monetary Theory, I started my part of it when I was a student at Melbourne University in the late 1970s.
Unemployment for the first time had really gone up and I was doing agricultural economics and we were studying the wool price stabilisation scheme. And so I understood from that that if you had a bumper stock of wool, you could get basically create full employment of wool and regulate the price. I sort of started thinking along those lines and then when the Japanese commercial property market crashed in the early 90s, I wondered how Japan had been able to escape with one negative quarter of GDP as a result of the biggest commercial property crash in history. So I started to look into Japan and its monetary system, how its central bank operated, how the fiscal policy interacted with monetary policy, how bond markets started to work and those things.
Now, Warren worked out a very detailed understanding of how banks work and how the banks interact with the central bank and how bond markets were because he was a fixed income trader, so his basic day to day life was doing deals on speculative expectations on bond market movements. He had worked out that – he did a very big trade in the Italian Lira Bond at the time, in the early 90s, when everybody was predicting it would crash. This was during the ‘91 recession when everybody was predicting that yields would rise and bond prices would fall. And he obviously worked out that the Bank of Italy basically controlled all yields if it wanted to and that there would be no real possibility of the yields rising that the government really was the issuer of the currency, couldn’t run out of money and so the bond markets were really not, not in charge. It was the government in charge, which allowed the bond markets in the space to operate.
This is when Italy had the Lira, it wasn’t part of the Euro, right?
Oh, yeah, it was early 90s. It was during that big ‘91 recession. So this was when Italy was the same as Australia and had its own currency, whereas now, of course, it uses a foreign currency, the Euro. Warren had worked out those things and we came together in about late ‘94 through a very early internet discussion list. And we realised that we were sort of on the same page coming different directions. And we started this project, which later I called Modern Monetary Theory1.
You gave it the name, did you Bill?
I did, yeah, I gave it the name during the Global Financial Crisis because up until then, we had a loose knit project. We were working together. Warren was starting to use his financial clout to fund young researchers in America and try to build up capacity in America. So more and more young academics came into the project. But for a long time we just mucked around in the normal academic way, we went to conferences and published papers. Then in 2004, I went to a seminar on IT and they were saying there’s this new technology called blogs. This was the sort of beginnings of social media. So I figured well look, no one in the academic profession is listening to us, because the economics profession is a really closed shop and it’s heavily conditioned by what we call group think and denial.
So I started a blog and that really started to proliferate the ideas out and I’d have to say, and you probably felt a bit of this the other day, on social media, but MMT, as it’s now called is probably the first economic paradigm that has grown through social media and from then, it just has grown in interest.
Lan osoa hemen: Etorri al da DTM-ren garaia? (Bill Mitchell)
Warren Mosler is one of but possibly the originator of modern monetary theory, but he did collaborate with Bill Mitchell of The University of Newcastle (…) Warren is talking to us from The Virgin Islands where he lives on the Island of Saint Croix. But the big difference with Warren Mosler is he’s not an academic, he is a fund manager, started off with a big bankers trust or a group of other banks, eventually had his own hedge fund trading bonds and essentially, put into practice his ideas that became known as modern monetary theory.
I suppose the key insight is here, that what he’s talking about is actual operations of money, not theory. He’s an operational guy and the way he approaches it is in the way the monetary system actually works. He’s really clear, really worth listening to and it’s long but really worthwhile.
Warren, it occurred to me that maybe a good place to start would be the insights you started to have in the 70s, when you were a fairly young bond trader – I can’t remember who with but at some stage, BT, and I think you moved around a bit…
I mean, those were the peak times of what we call monetarism and Friedmanism and so on, and I think you started then saying that the Emperor had no clothes. What exactly did you identify as the problem?
I can only remember bits and pieces from back then. I remember being a bankers trust and the Fed had raised reserve requirements and the trading managers, Allan Rogers – and he talked without moving his mouth like this, and he said, “Why I hope the Fed doesn’t just give them the money. The money supply is too high, they need to take the $10 billion2 or whatever it is out of the economy.”
And I remember saying – I was a fairly new trader there, I was 27 years’ old – I go, “Allan, you can’t do that, you can’t just – you know, it’s just a spreadsheet, you can’t take the money out, they have to add the money. They always add the money because otherwise it’s, in the first instance, the reserve requirements are debit and so then they either have an overdraft which is a reserve-add or you have to buy securities as a reserve-add. Since the overdraft would cause the Fed funds rate to go up 100 basis points, they don’t want that to happen, they have to just do repos or add to reserves.”
He goes, “Well, they could bring back those Euro dollars, there’s 300 billion Euro dollars sloshing around.” I go, “No there aren’t. There’s a spreadsheet over there with assets and liabilities, there’s nothing sloshing around, you can’t bring those back, that’s just empty rhetoric…” He didn’t really want to hear that. One of my clients was Cliff Viner at Phoenix Mutual, who later became my partner, and he directed my attention to an article in the Wall Street Journal by Eric Heineman, “The money supply is too high, I hope the Fed doesn’t just give them the money but takes it out.” I explain it to him and he was a client of Morgan Stanley so he called them with my answer and he calls me back with their double-talk answer and I straightened that up. He calls them back and then he calls me back and he says, “They’ve retracted their statement. They agree that you have to add the reserves.” So, I don’t know, maybe that was part of the pieces of the puzzle.
Well, the point of this part of the story is that what you were doing then was about operations, not theory. I mean, you’re an actual trader and what you’re talking about was the way that the system works, not some kind of economic theory.
That’s right, exactly. The debits and credits that happen whenever there’s a transaction.
Lan osoa hemen: Diruaren istorioa (Warren Mosler)
The Nature of Money: A System of Credits and Debits
Randall Wray-k DTM-z, non Warren Mosler-en garrantzia azpimarratzen duen:
Wray-k DTM-z, in The “Kansas City” Approach to Modern Money Theory
(a) 4. oharra:
…“The term “modern money theory” (also called “modern monetary theory” by some proponents) did not come along until much later (Bill Mitchell credits a commentator on his Billy Blog for the term), even though I had used the term “modern money” in the title of the first academic monograph. (I prefer to use “money” rather than “monetary” both because it was the word I had used in the title but also because the scope of MMT is not confined to “monetary economics” as that term is usually applied.”
(b) “The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contracts.” He goes on to state that this has been the case for “some four thousand years at least.”14
14 This is the source of the term “modern money”—which applies only to the “modern” period, the past “four thousand years at least” (Keynes 1976, 4).
1 Randall Wray-k, DTM-ren hirugarren aitapontekoak, beti horrela idatzi du: Modern Money Theory: http://neweconomicperspectives.org/modern-monetary-theory-primer.html.
2 Amerikar bilioi bat = mila milioi europar.