The newly released movie THE WEIGHT, starring Ethan Hawke, Russell Crowe and Julia Jones looks at an aspect of the Depression in 1933 now largely lost to history --the off book and sometimes violent machinations over gold as the Roosevelt administration both de-monetized and confiscated the stuff. What usually IS remembered is that the administration de-monetized gold. The shiny stuff would no longer back the Federal Reserve notes. (Eleven years later, the Bretton Woods Accord introduced some backdoor re-monetization -- but that is another story.) More to the movie's point, or at least to its backstory and a couple of expository speeches, Roosevelt figured he could not allow a lot of gold to remain in private hands. Had it stayed there, it could have been freely exchanged and it could well have become a de facto money, or at least a dangerous competitive risk to the fiat paper money by which it was supposed to have been replaced. So, private persons were ordered to tu...
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Yesterday, we spoke of a former cryptocurrency honcho, now hoping for an international prisoner exchange that night free him. Tomorrow we will speak of old-fashioned government-fiat money and the role it plays within Keynesian economics. Today, I offer a quotation from an ancient philosopher. A Stoic, Epictetus, said this about money. He imagines that a friend has asked him to go earn some quick money and then share it. He replies to this hypothetical friend. "If I can get it while maintaining my self-respect, trustworthiness, and high-mindedness, show me the way and I'll et some. But if you're asking me to lose my good qualities so that you can get things that aren't even good, you can see how unfair and unfeeling you're being. What would you rather have, money or a trustworthy and self-respecting friend?"
The ending of 2022 brought us the news of the death of Barbara Walters. She had retired from broadcasting in 2014 after more than a half-century of it, because she was struggling with cardiac difficulties. At a point one might fairly describe as her career peak she was both the co-anchor of a nightly news show with Harry Reasoner (1976 - 78) and the object of a Gilda Radner parody. The parody was of the gentler sort which may be considered a tribute, after all. [The photo above shows her interviewing the Fords as a couple, during their time in the White House.] At any rate, Walters' death comes soon after Wealth of Geeks has compiled a list of the thirty wealthiest women news anchors. Please don't feel that you need to look it up. Here is the gist. The wealthiest of them all is Katie Couric, now said to have a net worth of $110 million. Then Diane Sawyer at $80 million and, third, Megan Kelly with her $45 million. I am fascinated by how spread-out that is. Numbe...
I was attempting to explain the creation of money by the Federal Reserve to this young person -- at least he projects youth, one can never know on the internets -- and I was having trouble, He had the idea that the only way the Federal Reserve could inject money into the economy was by borrowing it from somewhere. I think he thought of 'money' in overly physicalist terms, like a stack of bills and/or coins. I'll try the explanation again here. The Federal Reserve injects money into the economy by, in essence, creating it as a matter of law. Most money has no physical form at all. It is the set of the numbers we assign to bank accounts. The Bureau of Engraving creates paper money, but that is only a small portion of the total supply of dollars (I've heard around 8%). But that is the tail not the dog. The dog in this situation consists of the idea of money, and numbers that are re-assigned at the tap of keys or the swipe of a plastic card fr...
As noted yesterday, today we'll discuss Wisconsin Central v. US, the SAS Institute case, and Chavez-Meza v. US. These deal, respectively, with the definition of "compensation" for tax purposes, patent law administrative challenges, and the use of the sentencing guidelines. Coming off of the dispute we discussed yesterday, which placed employees and management in stark opposition, Wisconsin Central may seem refreshing and even wholesome: a private company and its employees working together to oppose a government encroachment on their dealings (successfully, it turns out.) Actually, various subsidiaries of the Canadian National Railway Company sued the United States for a $13 million tax refund. Their attorneys argued on the basis of the language in the Railroad Retirement Tax Act, which says that the compensation to be taxed includes "any form of money remuneration paid to an individual for services rendered as an employee." The US has been tax...
Economist William Baumol, a professor emeritus at Princeton University, passed away on May 4. I imagine he couldn't bear the thought of witnessing one more silly pseudo holiday where Yankees pretend we care about Mexican history in order to drink tequila. In that case, his timing was perfect. Baumol is one of the two gentlemen immortalized in the name of the Baumol-Tobin model of the transactions demand for money. (The other, of course, is James Tobin who passed away 15 years ago.) Baumol's paper outlining this theory preceded Tobin's by four years, but the model seems to have languished in obscurity until Tobin's revival. Baumol did much else, too, but I'd like to write about transactions demand today. Indeed, I'm going to criticize its role in subsequent developments. This may seem a violation of the old rule "speak no ill of the dead." So I should preface it by saying the following: I'm certain Baumol made many other contributions more ...
Yesterday, I began a discussion of the work of Professor Guillermo Calvo, now of Columbia University’s School of International and Public Affairs, in an effort to answer the question in the headline of this blog entry, and I got so far as to introduce the word "stickiness." Let's proceed from there. Calvo does acknowledge that fiat money contains within itself the principle of its own destruction. But ... why does its destruction take so long? Even if deliberate government buttressing of the use of its money were "completely absent," he says, this factor would slow the aforementioned destruction. Stockiness is simply a convenient name for the behavioral fact that suppliers of goods and services "broadcast, far and wide, their willingness to take fiat money in exchange" for what they are selling. Further, private sellers often "reaffirm their willingness to do so over extended periods of time." The suppliers find it useful as a mar...
October 1, 2016 was an important day for international money (monies) and an important day in the history of the People's Republic of China. The International Monetary Fund added the Chinese yuan to a basket of currencies that it uses for its loans, known as the Special Drawing Rights currencies. The SDR list also includes the US dollar, the Japanese yen, the British pound, and the euro. That's it. Full stop. With the addition of the yuan there are bow as many SFR currencies as there are veto power countries in the UN Security Council. One confusing fact about the yuan is semantic: it seems to be used as a synonym with "renminbi." Actually, the yuan is the base unit, the renminbi is the currency, in much the same way that the "pound" is the base unit of the British "sterling." But over the last few decades, "pound" has become the most customary term in any context, and "sterling" is finding itself moving into the linguisti...
The website of BBC recently ran a list of the ten greatest continuing controversies about Winston Churchill. Personally, I was a bit surprised to find nothing about Bretton Woods there. Certainly Churchill's relationship to the Bretton Woods conference, of '44, which formally gave the US dollar the central place as the western world's currency, has been a matter of considerable controversy. I refer the reader doubtful on that point to THE BATTLE OF BRETTON WOODS, a recent offering of the Princeton University Press, which paints the conference itself as a dollar-versus-pound tug-of-war. Churchill either acceded to the lessened significance of the pound, or simply wasn't paying attention, and either fact is an important one. It is hard to believe that he wasn't paying attention. He had been closely associated with a gold standard earlier in his political career (a fact which also doesn't get into the BBC list), so it is possible he acceded to the supremac...
Almost exactly four years ago, economist Paul Krugman wrote the following explanation of the difficulty in defining the money supply for purpose of monetarist analysis. I think it is worth the resurrection. Surely we don’t mean to identify money with pieces of green paper bearing portraits of dead presidents. Even Milton Friedman rejected that, more than half a century ago. For one thing, a lot of those pieces of green paper are pretty much inert — sitting outside the United States, in the hoards of drug dealers and such. For another, checking accounts are clearly a close substitute for cash in hand. Friedman and Schwartz dealt with this by proposing broader aggregates –M1, which adds checking accounts, and M2, which adds a broader range of deposits. And circa 1960 you could argue that those aggregates were good enough. But now we have a large shadow banking system, in which things like repo serve much the same function as deposits; M3 used to capture some of that, but...