About Current Scholarship

This page contains abstracts and links to recent scholarship on monetary design and related issues. We also welcome posts to older scholarship that should be flagged.

Please submit abstracts to Dan Rohde: editor@justmoney.org

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Solvency as a Fundamental Constraint on LOLR Policy for Independent Central Banks: Principles, History, Law

Author: Sir Paul M. W. Tucker

This paper follows up earlier work advocating a principled modernization of doctrines for central bank lender-of-last-resort policies and operations. It argues for a new Fundamental Constraint on such authorities: namely, “the principle that central banks should not lend to firms that they know (or should know) to be fundamentally bust or broken.” Tucker supports this with commentary from various peers, a review of principles underlying bankruptcy law and resolution schemes, and by deconstructing other common counterarguments. Centrally, he argues that when central banks breach the Fundamental Constraint, they distribute resources to short-term creditors at the expense of longer-term creditors, acting as though they are the elected fiscal authority, and so violating some of the deepest values of constitutional democracy as well as jeopardizing their own independence. Using examples from canonical 19th century crises and the Lehman episode during 2008/09 Great Financial Crisis, he illustrates how the Fundamental Constraint can help make sense of certain decisions, and how it should shape a re-articulation of the published policies of the Federal Reserve and European Central Bank.

Tucker, Sir Paul M. W. (2020) “Solvency as a Fundamental Constraint on LOLR Policy for Independent Central Banks: Principles, History, Law,” Journal of Financial Crises: Vol. 2 : Iss. 2, 1-33.

Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss2/1

Unbundling Banking, Money, and Payments

Author: Dan Awrey

For centuries, our systems of banking, money, and payments have been legally and institutionally intertwined. The fact that these three—theoretically distinct—systems have been bundled together so tightly and for so long reflects a combination of historical accident, powerful economic and political forces, path dependence, and technological capacity. Importantly, it also reflects the unique and often under-appreciated privileges and protections that the law bestows on conventional deposit-taking banks. These privileges and protections have served to entrench banks as the dominant suppliers of both money and payments: erecting significant barriers to entry, undermining financial innovation and inclusion, spurring destabilizing regulatory arbitrage, and exacerbating the “too-big-to-fail” problem. Against this backdrop, the recent emergence of a variety of new financial technologies, platforms, and policy tools hold out the tantalizing prospect of breaking this centuries-old stranglehold over our basic financial infrastructure. The essential policy problem, at least as conventionally understood, is that creating a level legal playing field would pose a serious threat to both monetary and financial stability. This Article demonstrates that this need not be the case and advances a blueprint for how we can safely unbundle banking, money, and payments, thereby enhancing competition, promoting greater financial innovation and inclusion, and ameliorating the too-big-to-fail problem.

Awrey, Dan, Unbundling Banking, Money, and Payments (January 31, 2021). European Corporate Governance Institute – Law Working Paper No. 565/2021, Available at SSRN: https://ssrn.com/abstract=3776739 or http://dx.doi.org/10.2139/ssrn.3776739

Government has always picked winners and losers

Author: David M.P. Freund

A welfare state doesn’t distort the market; it just makes government aid fairer. 

Freund, David M.P., Washington Post, March 29, 2021: https://www.washingtonpost.com/outlook/2021/03/29/government-has-always-picked-winners-losers/

The Cambridge economic tradition and the distribution of the social surplus

Author: Nuno Ornelas Martins

Various research projects in economics developed at Cambridge share common philosophical presuppositions, within what can be termed as the Cambridge economic tradition. I argue here that the Cambridge economic tradition can be distinguished from other traditions in terms of its underlying ontology, methodology and ethics, and also in terms of the way in which those philosophical presuppositions are expressed in competing theoretical approaches to the distribution of the social surplus. I also distinguish between an economic tradition and a school of economics and note that various schools have existed within the Cambridge economic tradition. The various Cambridge schools can themselves be identified in terms of the specific analytical frameworks they adopted when addressing the distribution of the social surplus.

Cambridge Journal of Economics, Volume 45, Issue 2, March 2021, Pages 225–241, https://doi.org/10.1093/cje/beaa049

Histories of Bank Supervision

Author: Sean Vanatta

In this essay, I make the case for the historical study of bank supervision—both that historical methods are necessary to understanding the shape and structure of supervision in the present and that the study of supervision will contribute to active and important historiographical debates. First, I summarize how scholars—including my own work, with Peter Conti-Brown—are grappling with the definitional complexities of supervision as a set of layered, overlapping, and contingent governing practices. Then, I survey the extant sources of supervisory history; briefly because they are so few, largely comprised of institutional histories of supervisory institutions, as well as memoirs and biographies of practitioners. Finally, I offer a prospective historical agenda, in two parts. I narrate a history of supervision in the United States through the New Deal to demonstrate where the history of supervision, once further developed, will contribute to debates about the co-development of financial institutions and regulatory governance. Then, I suggest ways that supervisory history can also enrich—and be enriched by—histories of science, gender, race, and sexuality. In sum, this essay suggests paths forward for scholars for whom bank supervision is self-evidently important and for those who may have never encountered the term before.

Vanatta, Sean, Histories of Bank Supervision (December 15, 2020). Available at SSRN: https://ssrn.com/abstract=3749116 or http://dx.doi.org/10.2139/ssrn.3749116

Consumer Protection after Consumer Sovereignty

Author: Luke Herrine

This article argues for a fundamental rethinking of the function of consumer protection. It is time to abandon welfare economics and adopt what this article refers to as “moral economy”.

While it is increasingly accepted that the standard neoclassical model makes unrealistic assumptions about consumers and that it tends to portray markets too rosily, many scholars seem to think that a few tweaks to the model are enough to redeem it. This article argues against that notion. Most of the claimed benefits of the law-and-economics approach—its “scientific rigor”, its “anti-paternalism”, its respect for “choice”, its ability to transcend “moralism”, and the like—depend on the unrealistic assumptions of its baseline model. It is only in this model’s hothouse version of markets that normativity can depend entirely on what consumers, suitably “informed” and properly “rational”, choose for themselves. And it is this notion of rational informed choice—of “consumer sovereignty”—that serves as the problematic Grundnorm for even the most behaviorally inflected, transaction-cost-rich forms of welfare economics.

Consumer protection should instead be seen as a series of tools that allow a community to (appoint representatives to) determine the values any given market ought to further and to experiment with ways to ensure that the market lives up to those values. From this “moral economy” perspective, markets are not pale shadows of an ideal form of perfect aggregation of individual choices but rather socio-legally constructed spaces that serve different interests depending on how they are structured. Consumer protection operates via more conventionally political forms of sovereignty: it is a way for a political community to correct for forms of market ordering that are not living up to the values of that community.

The presentation of this theoretical argument is grounded in the analysis of a particular law: the FTC’s authority to ban and remediate “unfair…acts and practices”. Making sense of this law historically and conceptually requires grappling concretely with theoretical issues that might otherwise seem airy.

Herrine, Luke, Consumer Protection after Consumer Sovereignty (February 8, 2021). Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3781762

The aporetic financialisation of insurance liabilities: Reserving under Solvency II.

Author: Charalampos Fytros

The valuation of insurance liabilities has traditionally been dealt with by actuaries, who closely monitored underlying illiquid features, assumed a long-term perspective, and exercised their own subjective, expert judgment. However, the new EU regulatory regime of Solvency II (S2) has come to require market-consistent valuation supplemented by a risk-sensitive capital. This is considered an unwanted shift towards short-termism that is misaligned with the industry’s long term and countercyclical character. The new principles place the ‘technicalising’ logic of financial economics over ‘contextualising’ actuarial know-how. Following existing analytics of valuation from the ethnography of reinsurance markets and the social studies of finance, such requirements appear either as an alarming attack against the actuarial component of traditional valuation practice, or else as a preserver of it, through a process of enfolding at the heart of the financialisation project. This article holds that the case of S2 challenges both these analytics of valuation. S2’s financialisation project, precisely by attempting to construct itself, deconstructs itself into an actuarial project, in a recurring, aporetic process. In this respect, fair (or otherwise) valuation remains always undecidable, inconclusive, and thus responsible.

The aporetic financialisation of insurance liabilities: Reserving under Solvency II.
Charalampos Fytros. Finance and Society, EarlyView (2021).

The emergence of systemic risk: The Federal Reserve, bailouts, and monetary government at the limits

Author: Onur Özgöde

Why does the Federal Reserve bail banks out in violation of a core principle of free-market capitalism: private gain–private loss? This article argues the Fed rescues banks not because it is captured by financial interests, but because it is captured by the paradigm of ‘systemic risk’. Systemic risk emerged in the 1960s out of a jurisdictional struggle over the Fed between two expert groups, ‘monetary substantivists’ and ‘monetary formalists’. The latter’s triumph transformed the Fed into a macroeconomic institution, responsible for managing growth. It also led to the institutionalization of ‘systemic risk’—a conception of the financial system as a vital and yet vulnerable economic system and of the Fed’s responsibility for protecting it. In this process, policymakers grew to fear bank failures as they began to see financial disasters through the lens of systemic risk.

Onur Özgöde, The emergence of systemic risk: The Federal Reserve, bailouts, and monetary government at the limits, Socio-Economic Review, 2021;, mwaa053, https://doi.org/10.1093/ser/mwaa053

The New Bailments

Author: Danielle D’Onfro

The rise of cloud computing has dramatically changed how consumers and firms store their belongings. Property that owners once managed directly now exists primarily on infrastructure maintained by intermediaries. Consumers entrust their photos to Apple instead of scrap-books; businesses put their documents on Amazon’s servers instead of in file cabinets; seemingly everything runs in the cloud. Were these belongings tangible, the relationship between owner and intermediary would be governed by the common-law doctrine of bailment. Bailments are mandatory relationships formed when one party entrusts their property to another. Within this relationship, the bailees owe the bailors a duty of care and may be liable if they failed to return the property. The parties can use contract to customize the relationship but not to disclaim entirely.

Tracing the law of bailment relationships from its ancient roots to the present, this Article argues that cloud storage should be understood as creating a bailment relationship. The law of bailment, though developed in the Middle Ages, provides a robust framework for governing twenty-first century electronic intermediaries. Though the kind of stored property has changed, the parties’ expectations and incentives have not. Yet the decline of litigation, the rise of arbitration, federal diversity jurisdiction, and the ever-growing dominance of contract has thus far prevented courts from applying the law of bailments to these new services.

Recognizing cloud storage as a bailment would have significant implications. Most immediately, it would suggest that important provisions in many cloud storage services’ contracts are unenforceable. A hand-collected dataset of 61 cloud storage contracts, reveals that most have include general disclaimers for any liability for lost data. These disclaimers are inconsistent with the duty of care that is the foundation of the law of bailment. In addition, understand-ing cloud storage as a bailment would have important implications for both the law of consumer protection and Fourth Amendment protections.

D’Onfro, Danielle Frances, The New Bailments (February 12, 2021). Available at SSRN: https://ssrn.com/abstract=3785711

The Intellectual Origins of Sudan’s “Decades of Solitude,” 1989–2019

Author: Alden Young

The three decades between 1989 and 2019, when the National Salvation regime of Islamists and the military ruled Sudan, are now frequently remembered by international and Sudanese policymakers, politicians, intellectuals, and business elites as “lost decades” or “decades of solitude” marked by poor policymaking, corruption, and international isolation. These standard accounts, as well as much of the scholarly literature, assume that ideas played very little role in the development of Sudan’s political economy. Instead, most observers of Sudan’s political economy assume its evolution between 1989 and 2019 was shaped by happenstance and competing interests that settled into brief moments of equilibrium. This dismissal of the role that ideas play in shaping the political economy of Sudan in particular, and that of African states in general, is not only a result of prejudice or historical myopia, but also the result of recent trends that privilege the analysis of material, class, or sectoral interests over ideas in scholarship on political economy. These explanations obscure the intellectual traditions that gave rise to the particular contours of the Sudanese economy between 1989 and 2019. This article argues that the idea of tamkeen, or economic consolidation, guided the economic policies put forth by the National Salvation regime between 1989 and 2019. To explicate tamkeen—its origins and its meaning—this article examines the writings of two Sudanese intellectuals: Fatima Babiker Mahmoud and Muhammad Abu al-Qasim Hajj Hamad. In publications from the 1980s, these two wrote extensively about the failures of the Sudanese developmental state in the 1960s. In their critique of this earlier Sudanese state, we discover the preconditions for the idea of tamkeen, which guided the political economy of Sudan during the so-called “decades of solitude.”

Young, Alden. “The Intellectual Origins of Sudan’s “Decades of Solitude,” 1989–2019.” Capitalism: A Journal of History and Economics 2, no. 1 (2021): 196-226. doi:10.1353/cap.2021.0007.

Technocratic Pragmatism, Bureaucratic Expertise, and the Federal Reserve

Authors: Peter Conti-Brown & David A. Wishnick

The Federal Reserve (Fed) regularly faces novel challenges to its broad statutory mandates. Often, these challenges—from financial crises to pandemics to climate change—raise a critical question. When should the Fed act beyond the boundaries of its core institutional identity and expertise? On the one hand, some voices demand the Fed “stay in its own lane,” avoiding experimentation so that it may preserve its perceived legitimacy to carry out core historical functions. On the other, hewing too closely to precedent and existing expertise risks institutional failure of a different sort.

To navigate that tension, this Feature sketches an ethos of technocratic pragmatism—one that permits the Fed to develop the expertise necessary to address emergent problems as long as it remains constrained by norms designed to preserve its long-run legitimacy. We illustrate the ethos by examining three cases where the Fed has confronted, or is confronting, challenges that test the boundaries of its expertise: engagement with cyber risk, emergency lending before and during the COVID-19 pandemic, and nascent efforts to understand the intersection of central banking and global climate change. We also engage with cases where the Fed has transgressed legitimacy-preserving limits by intervening in policy disputes beyond the range of its statutory concerns. Taken together, these cases illustrate how the Fed must walk a fine line between valuable experimentation and the usurpation of politics.

Peter Conti-Brown & David A. Wishnick, Technocratic Pragmatism, Bureaucratic Expertise, and the Federal Reserve, Yale Law Journal 636, (2021): https://www.yalelawjournal.org/feature/technocratic-pragmatism-bureaucratic-expertise-and-the-federal-reserve

Borrowing Equality

Author:  Abbye Atkinson

For the last fifty years, Congress has valorized the act of borrowing money as a catalyst for equality, embracing the proposition that equality can be bought with a loan. In a series of bedrock statutes aimed at democratizing access to loans and purchase money for marginalized groups, Congress has evinced a “borrowing-as-equality” policy that has largely focused on the capacity of “credit,” while acoustically separating its treatment of “debt” as though one can meaningfully exist without the other. In taking this approach, Congress has proffered credit as a means of equality without expressly accounting for the countervailing force of debt relative to social subordination. Yet, debt has itself functioned as a mechanism of the very subordination that Congress’s invocation of “credit” aspires to address.

This Article argues that because in articulating a borrowing-as-equality policy Congress is implicitly encouraging debt among marginalized communities, Congress should develop policies that recognize both the potential upside value of borrowing and the particular vulnerabilities that debt creates for socioeconomically marginalized groups. More broadly, any policy that invokes borrowing as a social good must engage more deeply with how credit and debt work in a social context. In other words, credit cannot meaningfully function as a social good without due attention to and a solution for the work of debt as a social ill.

Atkinson, Abbye, Borrowing Equality (October 29, 2020). Columbia Law Review, Available at SSRN: https://ssrn.com/abstract=3721632


Does the national debt matter?

Authors: L. Randall Wray & Yeva Nersisyan

In this paper, we use the Modern Money Theory framework to analyze whether government debt (and deficits) in a country with its own sovereign currency presents a problem. We argue that permanent deficits and even a rising debt ratio are normal, especially in developed nations with current account deficits. In contrast to the conventional approach, which views deficits and debt as policy variables, we demonstrate that they are ex post outcomes which depend on economic performance. Further, in nations with sovereign currency, it is hard to imagine a scenario in which a rising deficit and the debt ratio would trigger an attack by bond vigilantes, lead to government insolvency, or generate high inflation or high interest rates. The claim that debt beyond a certain threshold impairs growth is also suspect since the observed empirical correlations are likely due to lower growth creating higher deficits. Lastly, we argue that deficit and debt ratios have no bearing on a nation’s fiscal policy space, which depends on the real resources it can mobilize.

L. Randall Wray & Yeva Nersisyan (2021) Does the national debt matter?, The Japanese Political Economy, DOI: 10.1080/2329194X.2020.1867586


Banking on Democracy

Author: Mehrsa Baradaran

The financial system is unequal and exclusionary even as it is supported, funded, and subsidized by public institutions. This is not just a flaw in the financial sector; it is a foundational problem for democracy. Across the financial industry, entrepreneurs, regulators, media, and scholars promote the goal of “financial inclusion” or “access to credit.” Facebook’s Libra, Bitcoin, and fintech providers like Square, PayPal, Venmo, and thousands of other new products or startup companies are launched with the stated aim of increasing financial inclusion. These private companies are joined by the Congress, non-profits, and financial regulators with programs and laws promoting financial inclusion. In fact, financial inclusion and access to credit are among the increasingly rare issues that unite the political left and right. Yet, despite consensus and years of effort, many individuals and communities continue to be excluded from the mainstream financial system, which forces them to resort to high cost payday lenders, check cashers, or other fee-based financial transaction products. The financially disenfranchised pay the most for services that the wealthy and the middle class receive at a subsidized rate. This Article proposes a new model of financial inclusion, which situates issues of access and inclusion as central to the legal design of the financial system. This Article argues that these remedies have failed because the current model of financial inclusion is rooted in a mistaken and incomplete theory of the financial market. “Normals” and “mainstream” credit markets are conceived of simply as “markets,” governed by market rules and market dynamics. In contrast, strategies for inclusion or “access to credit” are viewed as ancillary products, gap-filling, or subsidized add-ons for those who are outside of the credit market. This Article argues that the mainstream market and inclusion strategies are both part of the same financial market, which is itself a product of public policy. Instead of financial inclusion, this Article proposes to reframe the problem as a matter of financial redesign. The design of credit markets is an a priori choice embedded in law and policy that determines the contours and scope of the credit markets, including who is included. Reconceptualizing financial inclusion must thus proceed through democratic means because inclusion and access are a byproduct of institutional design rather than private market decision making.

Mehrsa Baradaran, Banking on Democracy, 98 Wash. U. L. Rev. 353 (2020).
Available at: https://openscholarship.wustl.edu/law_lawreview/vol98/iss2/5


Money on the Left Podcast: Money as a Constitutional Project with Christine Desan

Money on the Left Podcast

Hosts: Scott Ferguson, William Saas and Maxximilian Seijo

The Money on the Left Editorial Collective presents a classic episode from our archives along with a previously unavailable transcript & graphic art. In this episode, we are joined by Christine Desan, Leo Goettlieb professor of law at Harvard Law School to discuss her excellent book, Making Money: Coin, Currency, and the Coming of Capitalism. Desan argues that money is a constitutional project, countering the dubious “commodity” theory common to contemporary economic and legal orthodoxies. Desan develops her constitutional theory of money through rigorous historical examinations of money’s evolution, from medieval Anglo-Saxon communities to early-modern England to the American Revolution and beyond.

You can find a link to the podcast and complete transcript here: https://mronline.org/2021/01/01/money-as-a-constitutional-project-with-christine-desan/

A Route to Commons-Based Democratic Monies? Embedding the Governance of Money in Traditional Communal Institutions

Author: Ester Barinaga

The financial crisis of 2008 resulted, among other, on a popular awareness that the monetary system was not working for the interest of the many. The blockchain technology that was launched soon after offered monetary activists and entrepreneurs a tool to re-imagine, re-claim and re-organize money along a vague ideal of a commons paradigm. A wave of monetary experimentation ensued that took a most concrete form in two entrepreneurial spaces: crypto-currencies with global ambitions and local currencies based on communal democracy. Seemingly distinct on the outset, both strands share a determination to develop a monetary system that serves the many. This has led participants on both sides to reach out toward each other. The article looks at one such attempt: the Sarafu community crypto-currencies in Kenya. These currencies are embedding the creation of money in traditional community savings groups. Using Eleanor Ostrom’s framework and building on interview and ethnographic material, the article identifies the economic logic of mutualization proper of the savings groups as one that transforms private assets (one’s savings) into a financial commons for the group. To build on this logic, the Sarafu model in-the-making is embedding the production and governance of the new community cryptocurrencies in these saving groups. In that doing, Sarafu has the potential to advance a new architecture of money. However, findings suggest that the standardization and automation of the new monetary rules through smart contracts impose neoliberal ideas that slipped into the code, risking the erosion of the very communal decision-making processes that made savings groups interesting anchors of a money commons in the first place.

Front. Blockchain, 27 November 2020 | https://doi.org/10.3389/fbloc.2020.575851


Why Financial Regulation Keeps Falling Short

Authors: Dan Awry & Kathryn Judge

This article argues that there is a fundamental mismatch between the nature of finance and current approaches to financial regulation. Today’s financial system is a dynamic and complex ecosystem. For these and other reasons, policy makers and market actors regularly have only a fraction of the information that may be pertinent to decisions they are making. The processes governing financial regulation, however, implicitly assume a high degree of knowability, stability, and predictability. Through two case studies and other examples, this article examines how this mismatch undermines financial stability and other policy aims. This examination further reveals that the procedural rules meant to promote accountability and legitimacy often fail to further either end. They result instead in excessive expenditures before new rules are adopted, counterproductive efforts to perfect ever more detailed rules, and too little re-evaluation of existing rules in light of new information or changed circumstances. The mismatch between the nature of finance and how finance is regulated helps to explain why financial regulation has failed in the past and why it will likely fail again. It also suggests the need for a new approach to financial regulation, one that acknowledges the limits of what can be known given the realities of today’s complex and constantly evolving financial ecosystem.

Awrey, Dan and Judge, Kathryn, Why Financial Regulation Keeps Falling Short (February 1, 2020). Columbia Law and Economics Working Paper No. 617, Cornell Legal Studies Research Paper No. 20-03, European Corporate Governance Institute – Law Working Paper No. 494/2020, Available at SSRN: https://ssrn.com/abstract=3530056 or http://dx.doi.org/10.2139/ssrn.3530056


Losing Autonomy: The Norwegian Central Bank During the Second World War

Author: Einar Lie

In the mid‐twentieth century a number of central banks around the western world lost their operational autonomy and were placed under government control. The origin of these policy changes can be traced to the intellectual and political developments of the interwar era in addition to the introduction of the Bretton Woods monetary system. The Norwegian central bank offers a particularly stark example of this phenomenon: experiencing a rapid decline from its high level of autonomy in the interwar years, to a clear subordination to the government after 1945. Through an analysis of the correspondence between the main policy makers in the exiled Norwegian government and central bank management, this article contributes to the understanding of central bank autonomy by tracing the decisive factors that led to the Norwegian central bank’s loss of agency..

Lie, Einar, Losing Autonomy: The Norwegian Central Bank During the Second World War (November 2019). The Economic History Review, Vol. 72, Issue 4, pp. 1363-1383, 2019.


The Capital Commons: Digital Money and Citizens’ Finance in a Productive Commercial Republic

Author: Robert Hockett

All societies must address two questions where the organization of productive activity is concerned. The first is whether production will be mainly publicly managed, privately managed, or ‘mixed.’ The second is whether the financing of production will be mainly publicly managed, privately managed, or mixed.

In the American commercial republic, we seem more or less to have answered the ‘who does production’ question to our own satisfaction. From the founding era to the present, we have elected to leave production primarily, though not of course solely, ‘in private hands.’ Where the financing of production is concerned, on the other hand, we have been more ambivalent.

For the past 160 years, our financial system has operated as a public-private franchise arrangement. At the core of our franchise lie the sovereign public (the ‘public’ of our ‘republic’) and its money-modulator – the issuer and manager of its monetized full faith and credit, its ‘money’ – on the one hand, and the private sector financial institutions and markets we publicly license to allocate most of the resultant Wicksellian ‘bank money’ or ‘credit-money’ on the other hand. At the periphery of the franchise lie those institutions and markets that ‘shadow bank’ through relations with the banking core.

In recent years, developments in several distinct spaces have prompted what amounts to a broad reassessment of our hybrid financial arrangements. One such development is weariness with our system’s penchant for over-generating public credit that fuels bubbles and busts rather than production, a product of leaving our public capital – by far the greater part of investment capital – to private management. This is what the author has long called poor credit modulation.

Another ground of critique is our hybrid system’s poor record on what the author has long called credit allocation, from which modulation turns out to be inseparable. Our morbid fear of explicitly, rather than implicitly, ‘picking winners and losers’ is the culprit here. Finally, other sources of disenchantment are our system’s long-term worsening of inequality, the scandal of commercial and financial exclusion our system permits, and the promise offered by new financial technologies where ending both that and leaky monetary policy are concerned.The current Covid pandemic and recent murder of George Floyd of course underscore these sources of disillusion.

This article embraces these critiques, which the author himself has leveled continuously over the past fifteen years, argues that privately ordered production requires publicly ordered finance, and shows how to order finance publicly on a Fed balance sheet forthrightly recognized as a Citizens’ Ledger. New public investments will make up the asset side of the upgraded Fed balance sheet, while a corresponding system of digital public banking through ‘FedWallets’ will upgrade the liability side of the same. Newly restored regional Fed functionalities (‘Spreading the Fed’), an FSOC-inspired National Reconstruction and Development Council (NRDC) and its financing arm (a restored RFC), and a price-stabilizing ‘People’s Portfolio’ round out the new system of Citizens’ Finance.

In the course of its arguments, the article traces all salient consequences that flow from its complete overhaul of our system of financing production, from banking through ‘shadow banking’ to the capital markets. It also makes some surprising discoveries along the way. Among these is that full separation of Fed and Treasury and hence monetary and fiscal policy, itself an artifact of franchise finance and hence the false hope of separating credit modulation from credit allocation, is no longer tenable. Another is that global central bank digital currency (CBDC) development is now corroborating much of what the article argues.

Hockett, Robert C., The Capital Commons: Digital Money and Citizens’ Finance in a Productive Commercial Republic (June 1, 2018). Review of Banking and Financial Law, Vol. 39, No. 345, 2019-20


Digital Currencies, Stablecoins, and the Evolving Payments Landscape

Author: Lael Brainard

Speech by Governor Lael Brainard of the Federal Reserve at The Future of Money in the Digital Age, Sponsored by the Peterson Institute for International Economics and Princeton University’s Bendheim Center for Finance, Washington, D.C.

Digital Currencies, Stablecoins, and the Evolving Payments Landscape (October 16, 2019).


Book Review: Law and Macroeconomics as Mainstream

Author: Bruno Meyerhof Salama

In spite of its name, economic analysis of law is mostly unconcerned with money and markets. In a recently published book, Law and Macroeconomics: legal remedies for recessions, Professor Yair Listokin challenges this doubtful convention. He advocates “expansionary legal policies” to stimulate the economy when monetary policy reaches the zero-lower bound. This proposal is presented as a straightforward application of mainstream economic views, not a heterodox deviation. My review considers how the book’s main arguments depart from established views in economic analysis of law and discusses how its applications fare in light of the Keynesian perspective that it purports to uphold. I conclude with a discussion of the book’s relevance for the current recession.

Meyerhof Salama, Bruno, Law and Macroeconomics as Mainstream. Law and Macroeconomics: Legal Remedies for Recessions. By Yair Listokin. Cambridge, Mass.: Harvard University Press. 2019. Pp. 269. (August 10, 2020). University of Toronto Law Journal, Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3671097 


The People’s Ledger: How to Democratize Money and Finance the Economy

Author: Saule T. Omarova

The COVID-19 crisis forcefully underscored the urgency of digitizing sovereign money and ensuring broad access to affordable banking services. It pushed two related ideas—the issuance of “central bank digital currency” and the provision of retail deposit services by central banks—to the forefront of the public policy debate. To date, however, this debate remains fundamentally incomplete. Framed by reference to fast payments and financial inclusion, most reform proposals in this vein do not offer a coherent vision of how the act of “democratizing” access to sovereign money would—and should—change the key systemic dynamics of finance. This lack of a systemic perspective both obscures and dilutes the full transformative potential of these increasingly popular ideas.

Taking the debate to a qualitatively new level, this Article offers a blueprint for a comprehensive restructuring of the central bank balance sheet, as the basis for redesigning the core architecture of modern finance. Focusing on the U.S. Federal Reserve (the Fed), the Article outlines a series of structural reforms that would redefine the role of a central bank as the ultimate public platform for generating, modulating, and allocating financial resources in a democratic economy—the People’s Ledger.

On the liability side of the ledger, the Article envisions the full migration of demand deposit accounts to the Fed’s balance sheet and explores the full range of new, more direct and flexible, monetary policy tools enabled by this shift. On the asset side, it advocates a comprehensive restructuring of the Fed’s investment portfolio, which would maximize its capacity to channel credit to productive uses in the nation’s economy. This compositional overhaul of the Fed’s balance sheet would profoundly transform the operations and systemic functions of private banks, securities dealers, and other financial institutions and markets. Tracing these structural implications, the Article shows how the proposed reforms would make the financial system less complex, more stable, and more efficient in serving the long-term needs of the American people.

Seigniorage through Periodic Recoinage: When the Validity of Money Was Restricted in Time

Author: Roger Svensson & Andreas Westermark

A monetary system called periodic re-coinage was used during almost 200 years in large part of medieval Europe. Old coins were frequently declared invalid and had to be exchanged for new ones for an exchange fee. This system – which is equivalent to a Gesell tax – required a limited coin volume in circulation and an exchange monopoly in a geographical area. We show that such a Gesell tax works and do generate incomes for the minting authority if the tax level is sufficiently low and if the punishment for using invalid coins is sufficiently high.

The Janus Faces of Money, Property, and Governance: Fiscal Finance, Empire, and Race

Author: Jamee K. Moudud

This paper contributes to the literature on racial capitalism by deploying a key insight of the Law and Political Economy tradition, which is that politics acting through the law plays a constitutive role in the monetary hardwiring of economies and their property rights. By focusing on two key elements of fiscal finance, central banking and taxation, the paper shows that while the pressures of democratic self-governance created one type of hardwiring in Britain and its white dominions racialized politics created a different type in the colonies of color. In short, the particular monetary hardwiring of the colonies of color effectively “kicked away the ladder” needed for their successful socio-economic development, occluding the very different policies pursued in Britain and the dominions. This left the colonies of color in a vulnerable state at independence, providing much weaker foundations for their subsequent economic development. Given the key role played by gold in the anchoring of banknote emissions by the Bank of England (BoE) Britain’s global politics of gold and silver was central to its domestic economic development. And the BoE, a private joint-stock corporation, was deeply enmeshed in the government’s domestic and colonial governance policies. As with the BoE taxation systems domestically and internationally exemplified the same principle: private property was always embedded in the public sphere following different modes of governance in different historic and geographic contexts. Simply put, politics acting through the law was actively creating markets in different ways rather than protecting pre-existing and privately-created ones.


The Key to Value: The Debate over Commensurability in Neoclassical and Credit Approaches to Money

Author: Christine Desan

Neoclassical and credit approaches to money represent dramatically different theories of value. For many within the neoclassical tradition, the market exists as a conceptual enterprise – a place where independent agents compare and rank real goods, exchanging them afterwards to in accord with their preferences. That theory reflects a particular approach to value, identifying it as a pre-existing quality ranked by individual choice. The theory also generates a particular approach to money, assuming that a term of measurement naturally imports commensurability into evaluation.

By contrast, public credit approaches suggest that creating commensurability in a world heterogeneous in so many aspects is a profound challenge. Modern political communities have responded by substantiating value in a unit that is cognizable to all: they issue credit tokens that can be set off against widely shared public obligations. That means, first, that value cognizable in money follows rather than pre-exists market activity: it is produced as individuals use credit money as a medium. Second, because value is produced as people use money, the character of that money matters: its nature as credit carries with it an allocative bias. Both governments and private lenders (banks) advance credit in order to spend selectively: they create a credit medium by providing credit to some people relative to others. According to the way money is created, definitionally we might say, individuals will not be equally situated in the process that generates prices. Decisions about value are made in the wake of that fact.  The essay closes by contrasting the democratic visions at stake in neoclassical and public credit approaches to value. That exercises suggests that, if the public credit approach better describes money and market, their potential can only be realized by promoting rather than assuming equality.

Christine Desan, The Key to Value: The Debate over Commensurability in Neoclassical and Credit Approaches to Money, 83 Law and Contemporary Problems 1-22 (2020)
Available at: https://scholarship.law.duke.edu/lcp/vol83/iss2/2


Just Published: Finance and Society, Vol. 6, No. 1

Author: Editors, Finance and Society

The editors of Finance and Society are pleased to announce the publication of vol. 6, no. 1 (2020).

The issue includes an article by Photis Lysandrou on financialisation and circuit theory, an essay by Daniel Tischer on Facebook’s Libra currency proposal, and a special forum on critical macro-finance.

The forum is guest-edited by Sahil Jai Dutta, Ruben Kremers, Fabian Pape, and Johannes Petry, and features contributions from Bruno Bonizzi, Daniela Gabor, Annina Kaltenbrunner, Samuel Knafo, Steffen Murau, and Tobias Pforr.

The full issue is available here.


Colonialism’s Currency: Money, State and First Nations in Canada, 1820-1950

Author: Brian Gettler

Money, often portrayed as a straightforward representation of market value, is also a political force, a technology for remaking space and population. This was especially true in nineteenth- and twentieth-century Canada, where money – in many forms – provided an effective means of disseminating colonial social values, laying claim to national space, and disciplining colonized peoples.

Colonialism’s Currency analyzes the historical experiences and interactions of three distinct First Nations – the Wendat of Wendake, the Innu of Mashteuiatsh, and the Moose Factory Cree – with monetary forms and practices created by colonial powers. Whether treaty payments and welfare provisions such as the paper vouchers favoured by the Department of Indian Affairs, the Canadian Dominion’s standardized paper notes, or the “made beaver” (the Hudson’s Bay Company’s money of account), each monetary form allowed the state to communicate and enforce political, economic, and cultural sovereignty over Indigenous peoples and their lands. Surveying a range of historical cases, Brian Gettler shows how currency simultaneously placed First Nations beyond the bounds of settler society while justifying colonial interventions in their communities.

Testifying to the destructive and the legitimizing power of money, Colonialism’s Currency is an intriguing exploration of the complex relationship between First Nations and the state.

Brian Gettler, Colonialism’s Currency: Money, State and First Nations in Canada, 1820-1950 (McGill-Queen’s University Press, 2020).


Inside the Black Box: Credibility and Situational Power of Central Banks

Author: Ayca Zayim

Despite the consensus that the power of finance constraints central banks under financial globalization, the variation in their autonomy from market forces at the micro level of monetary policymaking remains underexplored. This article demonstrates that credibility endows central banks with situational power to make monetary policy decisions that involve less sacrifice of economic growth to price stability. Based on the comparative analysis of the policy decisions of central banks in two emerging economies, South Africa and Turkey, during 2013–2014, I show that this policy space stems from central banks’ capacity to successfully influence market expectations. The argument relies on public texts and over 130 interviews with central bankers in South Africa and Turkey and financiers in Johannesburg, Istanbul and London. The findings contribute to literature on central bank credibility and communication by exploring how credibility functions and creates room for central banks to maneuver through influencing contingent and performative expectations.


The Money Doctors of Seventeenth Century Naples

Author: Francois R. Velde

A collection of texts printed in early seventeenth-century Naples exemplifies the intersection between economic history and the history of thought. A slowly worsening monetary situation led authorities, unsure of what they could and should do, to solicit diagnostics and cures. The unfolding debate is challenging to analyze: participants viewed events through the lenses of their background, training, and interest. Merchant experts competed with university graduates and technical officials. These texts offer us a rich but contradictory set of observations and interpretations in what constitutes an early attempt at applied economic analysis and policy advice.


The ECB and € E-Banknotes

Author: Corinne Zellweger-Gutknecht, Benjamin Geva, Seraina N. Gruenewald

The modern monetary system is controlled by the state and yet linked to private deposit banking. Monetary value held in deposits with commercial banks is known as ‘commercial bank money’ (CoBM). Monetary value held in deposits with the central bank – as well as banknotes issued by the central bank – is called ‘central bank money’ (CeBM). Under this scheme, central banks thus issue two forms of central bank money: cash for the retail sector and balances in traditional reserve accounts for wholesale purposes (reserves). However, for several years now, and most recently in particular against the background of private actors commencing to issue private digital currencies, a growing number of central banks have also been investigating the possibility and implications of issuing a digital form CeBM for the general public: central bank digital currency (CBDC), also known as retail CBDC (rCBDC).


The ‘Kansas City’ Approach to Modern Money Theory

Author: L. Randall Wray

Modern money theory (MMT) synthesizes several traditions from heterodox economics. Its focus is on describing monetary and fiscal operations in nations that issue a sovereign currency. As such, it applies Georg Friedrich Knapp’s state money approach (chartalism), also adopted by John Maynard Keynes in his Treatise on Money. MMT emphasizes the difference between a sovereign currency issuer and a sovereign currency user with respect to issues such as fiscal and monetary policy space, ability to make all payments as they come due, credit worthiness, and insolvency. Following A. Mitchell Innes, however, MMT acknowledges some similarities between sovereign and non-sovereign issues of liabilities, and hence integrates a credit theory of money (or, “endogenous money theory,” as it is usually termed by post-Keynesians) with state money theory. MMT uses this integration in policy analysis to address issues such as exchange rate regimes, full employment policy, financial and economic stability, and the current challenges facing modern economies: rising inequality, climate change, aging of the population, tendency toward secular stagnation, and uneven development. This paper will focus on the development of the “Kansas City” approach to MMT at the University of Missouri–Kansas City (UMKC) and the Levy Economics Institute of Bard College.

ERN History of Economics eJournal, Vol. 15 No. 31, available here.


‘Funk Money’: The End of Empires, The Expansion of Tax Havens, and Decolonization as an Economic and Financial Event

Author: Vanessa Ogle

This article explores the question of what happened to European assets in the process of decolonization. It argues that decolonization created a money panic of sorts that led white settlers, businessmen, and officials to seek to liquidate assets they owned and move funds out of the colonial world. Instead of being repatriated to metropolitan countries with high tax rates and exchange controls, money moved to tax havens. Decolonization thus provided an important share of early postwar tax haven business in a period when tax havens and offshore finance expanded during the 1950s and 1960s. In turn, the withdrawal of Euro-American investments from the decolonizing world set the stage for the politics of development and modernization in the coming decades. Ironically, the outflow of funds during decolonization and the subsequent return of some funds in restructured form as investments by multinational and other companies soon caused difficulties in newly independent developing countries. Companies soon found ways to rebook profits to have occurred in a tax haven rather than in the developing world, thus depriving low-income countries from tax revenue. The withdrawal of Euro-American investments from the colonial world during decolonization moreover had implications for the growth of portfolio investment, as funds removed from colonies were often invested through a tax haven onwards in US securities. All in all, decolonization was an economic and financial event that is only beginning to emerge in full detail. 


Technology v Technocracy: Fintech as a Regulatory Challenge

Author: Saule Omarova, Cornell Law School

This article examines fintech as a systemic force disrupting the currently dominant technocratic paradigm of financial regulation. It offers a five-part taxonomy of (i) the key fintech-driven changes in the structure and operation of today’s financial system, and (ii) the corresponding challenges these systemic shifts pose to the continuing efficacy of the regulatory enterprise as it exists today. This exercise reveals the fundamental tension at the core of the fintech problem. In the fintech era, the financial system as a whole is growing ever bigger, moving ever faster, and getting ever more complex and difficult to manage. The emerging regulatory responses to these macro-level changes, however, continue to operate primarily on the micro-level. Surveying the presently fragmented efforts to regulate fintech, this article highlights the limiting effects of the technocratic bias built into their design. Against that background, it outlines several alternative reform options that would explicitly target the core macro-structural, as opposed to micro-transactional, aspects of the fintech challenge—and do so in a more assertive, comprehensive, and normatively unified manner.

Saule T Omarova, Technology v Technocracy: Fintech as a Regulatory Challenge, Journal of Financial Regulation, , fjaa004, https://doi.org/10.1093/jfr/fjaa004


Corona Crisis: Lessons of the Stress Test

Author: Perry G Mehrling, Pardee School of Global Studies, Boston University

Perry Mehrling talks to Boston Economic Club June 3, 2020 about the Coronavirus Crisis.


Jim Crow Credit

Mehrsa Baradaran, University of California Irvine

The New Deal created a separate and unequal credit market—high-interest, non-bank, installment lenders in black ghettos and low-cost, securitized, and revolving credit card market in the white suburbs. Organized protest against this racialized inequality was an essential but forgotten part of the civil rights movement. After protests and riots drew attention to the reality that the poor were paying more for essential consumer products than the wealthy, the nation’s policymakers began to pay attention. Congress held hearings and agencies, and academics issued reports examining the economic situation. These hearings led to new federal agencies and programs, executive actions, as well as several acts of legislation. These Congressional investigations and the theories and explanations emanating from policymakers and academics were the genesis of decades of legislation aimed at supporting minority banks and other institutions. The resulting policy framework is still in effect and includes: the Community Reinvestment Act (CRA), the Community Development Financial Institution Act (CDFIA), as well as several key provisions and mandates regarding minority banks in banking legislation. In this Article, I will argue that the foundational theoretical premise of these laws and policies is flawed. Though policymakers and scholars accurately diagnosed the root causes of the disparate credit market, the solutions did not correspond with the problem and have therefore been ineffective. These laws and policies were not aimed to address the systemic causes of the disparity but only served to treat its symptoms. The misguided focus on small community banking, minority-owned banks, and mission-oriented institutions as a response to structural inequality has been the dominant framework in banking reform.

In analyzing the varied, but theoretically consistent response to lending inequality, this Article also challenges a long-standing banking myth that “small community banking” or “microfinance” is the answer to poverty, specifically for marginalized communities. This idea was the foundational theory of the minority banking industry, the CRA, the CDFIA, and almost every legislative response to credit inequality for the past fifty years. The premise of these laws is that that marginalized communities, having been left out of the dominant banking industry, will pool their resources and collectively lift themselves out of poverty. As such, these laws are rooted in neoliberal and libertarian concepts of banking market even as they have been championed by progressive reformers and community activists. For most policymakers, activists, and scholars, the buzzword is “community empowerment” and they have legislated accordingly. In doing so, they have avoided addressing the root causes of the problem and have shifted the responsibility of a solution to the disenfranchised communities themselves instead of devising comprehensive federal policy solutions. This Article will trace the genealogy of this legislation and offer solutions that will address the root causes of this inequality.

Baradaran, Mehrsa, Jim Crow Credit (May 29, 2019). UC Irvine Law Review, Vol. 9, 2019; University of Georgia School of Law Legal Studies Research Paper No. 2019-18. Available at SSRN: https://ssrn.com/abstract=3395876


Private Markets, Public Options, and the Payment System

Peter Conti-Brown, University of Pennsylvania

David A. Wishnick, University of Pennsylvania

The speed at which money moves between people and businesses in the United States lags well behind international standards. Far from being a mere inconvenience, slow payment speeds create needless financial uncertainty, lead to inefficiencies across the economy, and drive demand for high-cost credit products like payday loans and overdraft protection. To speed up the payment system, the Federal Reserve has announced “FedNow” a platform due in 2023 that would operate as a public real-time payment rail, competing with a privately-run platform in the interbank payment market.

This Article analyzes the problem of slow payments and the Fed’s many roles in addressing it. Against the Fed’s critics, we argue that the Fed’s operational involvement in the payment system holds the capacity to achieve three objectives at the heart of payment policy in the United States: to catalyze innovation, enhance access to developing payment networks, and shore up financial stability. Fed participation in the payment system and public-private competition are not troublesome bugs or unfortunate byproducts of political compromise. Rather, they represent valuable features of the Fed’s hybrid, public-private system and are likely to drive faster payment development in the United States.

We also argue for an expanded use of Fed tools to achieve payment objectives well beyond FedNow, including by using the Fed’s unique status as operator, market participant, regulator, and supervisor of the payment system and the private financial institutions that participate in it. These are different roles that can be harmonized for the same public policy outcome.

Conti-Brown, Peter and Wishnick, David, Private Markets, Public Options, and the Payment System (April 17, 2020). Yale Journal on Regulation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3578844

The evolution of the Offshore US-Dollar System: past, present and four possible futures

Steffan Murau, Joe Rini & Armin Haas

Little has contributed more to the emergence of today’s world of financial globalization than the setup of the international monetary system. In its current shape, it has a hierarchical structure with the US-Dollar (USD) at the top and various other monetary areas forming a multilayered periphery to it. A key feature of the system is the creation of USD offshore – a feature that in the 1950s and 60s developed in co-evolution with the Bretton Woods System and in the 1970s replaced it. Since the 2007–9 Financial Crisis, this ‘Offshore US-Dollar System’ has been backstopped by the Federal Reserve’s network of swap lines which are extended to other key central banks. This systemic evolution may continue in the decades to come, but other systemic arrangements are possible as well and have historical precedents. This article discusses four trajectories that would lead to different setups of the international monetary system by 2040, taking into account how its hierarchical structure and the role of offshore credit money creation may evolve. In addition to a continuation of USD hegemony, we present the emergence of competing monetary blocs, the formation of an international monetary federation and the disintegration into an international monetary anarchy.

Murau, S., Rini, J., & Haas, A. (2020). The evolution of the Offshore US-Dollar System: Past, present and four possible futures. Journal of Institutional Economics, 1-17. doi:10.1017/S1744137420000168

The Federal Reserve Public Education Emergency Finance Facility (PEEFF): A Proposal

Gerald Epstein, University of Massachusetts Amherst

State and local finances, including for public education, have been hit hard by the COVID-19 crisis, leaving more than a $500 billion hole in their budgets. Grants from the federal government would be the best solution for these temporary fiscal problems, but, even in the best-case scenario, it is unlikely that sufficient government funds will be forthcoming. Fortunately, additional resources could be made available through the Federal Reserve System (the Fed). This paper describes how the Fed’s newly created Municipal Liquidity Facility (MLF) can be used to provide substantial emergency assistance to the public education systems of states and cities. Although the MLF has a $500 billion lending capacity, public education would have to compete with many other institutions for this funding. This paper proposes a new special Fed facility, The Public Education Emergency Funding Facility (PEEFF), which would be dedicated specifically to funding public education. To fund education, as a new innovation, this facility could buy long-term human capital bonds from the states at very low interest rates. By buying these bonds, the Federal Reserve could help states maintain the crucial public job of educating our children and young adults during the pandemic, rather than only bailing out Wall Street.

Epstein, Gerald. The Federal Reserve Public Education Emergency Finance Facility (PEEFF): A Proposal. Policy Brief, May 2020: https://www.peri.umass.edu/component/k2/item/1286-the-federal-reserve-public-education-emergency-financing-facility-peeff-a-proposal

Why is this Happening? with Chris Hayes: Saving the Economy with Saule Omarova

Why is this Happening? Podcast Talks with Saule Omarova

Are we doing enough to keep the economy alive through this crisis? So far, economic relief efforts have been messy, convoluted, and inequitably distributed. But while we talk about the steps taken to save the economy, we first need to know the structures in which that recovery originates. Who decides where the money goes, how are those decisions being made – and can these mechanisms be more effective? Not just in this current pandemic-induced economic contraction, but on a more permanent institutional level. How can we ensure our financial system is stable enough to weather these types of crises? After dedicating her academic career to answering these types of questions, law professor Saule Omarova joins to discuss her proposal for what that new type of institution can and should look like.

You can find the episode here: https://podcasts.apple.com/us/podcast/why-is-this-happening-with-chris-hayes/id1382983397?i=1000473624817

The Class Politics of the Dollar System

Yakov Feygin & Dominik A. Leusder

The global dollar system has few national winners. The typical frame for understanding the US dollar is that of “exorbitant privilege.” But the role of the dollar in structuring the international financial system and defining the relationship between a hegemonic US and the rest of the world is ambiguous—as is the question of who exactly benefits from the current arrangement. Dollar primacy feeds a growing American trade deficit that shifts the country’s economy toward the accumulation of rents rather than the growth of productivity. This has contributed to a falling labor and capital share of income, and to the ballooning cost of services such as education, medical care, and rental housing. With sicknesses like these, can we say for certain that the reserve currency confers substantial benefits to the country that provides liquidity and benchmark assets denominated in that currency?

Feygin, Yakov and Leusder, Dominik. Phenomenal World May 1st, 2020: https://phenomenalworld.org/analysis/the-class-politics-of-the-dollar-system

Analyzing the Constitutional Theory of Money: Governance, Power, and Instability

Jamee K. Moudud, Sarah Lawrence College

At the heart of the constitutional theory of money is the argument that money is central to governance. This article explores the ways in which the core mechanism of the publicly undergirded monetary system, involving the incentivization and disciplining of private investors in the money creation process, creates its ‘fiscal value’ and generates both power struggles and possible instability in the unit of account. This twin dynamic of power and instability is intrinsic to a longue durée analysis of money. It is argued that since the current jural relations allocate money and power in particular ways, the basis is created for potential future political challenges to the status quo ante, thereby creating instability. Further, the article emphasizes the centrality of the indeterminacy criterion which is at the core of the critical legal studies (CLS) framework, and its intimate connection to Keynes’s notion of uncertainty. The indeterminacy/uncertainty nexus is used to explore how currency stability is determined or undermined by expectations, power struggles, tax contestations, and broader policy frameworks. Finally, the article relates this monetary theory to the literature on state-led industrialization and shows how such a constitutional money theory of industrialization is an alternative to the New Institutionalist perspective which emphasizes the centrality of ‘clear and well-defined’ property and contracts in order to create an ‘efficient’ economy.

MOUDUD, J. (2018). Analyzing the Constitutional Theory of Money: Governance, Power, and Instability. Leiden Journal of International Law, 31(2), 289-313. doi:10.1017/S0922156518000134

Tenure of Office and the Treasury: The Constitution and Control over National Financial Policy, 1787 to 1867

Aditya Bamzai, University of Virginia School of Law

The disputed scope of the President’s authority to remove subordinates in the executive branch, and to direct them in the performance of their functions, is one of the central issues of federal constitutional law. On the one hand, some argue that Article II gives the President such authority. By contrast, others claim that the Constitution allows Congress to regulate the tenure of office of executive branch officers by limiting the President’s removal power.

In the context of this debate, some have argued that financial institutions—the components of the “treasury”—were historically insulated from presidential control. They rely on early Congresses’ creation of several commissions with the Chief Justice as a member, establishment of the First and Second Banks of the United States, and use of distinct language to establish the Department of the Treasury and some of its officers. This Article shows that these claims are incorrect. Drawing on congressional and executive sources, case law, and contemporaneous treatises, this Article demonstrates that the prevailing view in the years between the Constitution’s adoption and the impeachment trial of Andrew Johnson was that financial government institutions were no different from other parts of the federal government for purposes of presidential control. The President had the constitutional authority to remove officials within the Department of the Treasury. The institutions over which presidential control was conspicuously lacking—the First and Second Banks of the United States—were generally understood to be private, rather than arms of the government, and to perform non-sovereign functions. But to the extent the Bank was understood to perform sovereign functions, its opponents argued that it did so impermissibly, using a variation of the modern argument that Congress may not delegate such functions to private entities. This Article’s exploration of these issues both bears on contemporary debates about the scope of the President’s removal power and shows how early expositors of the Constitution understood the allocation of federal government control over national financial policy.

Bamzai, Aditya, Tenure of Office and the Treasury: The Constitution and Control over National Financial Policy, 1787 to 1867 (March 24, 2020). 87 George Washington University Law Review ___ (2019). Available at SSRN: https://ssrn.com/abstract=3560196 or http://dx.doi.org/10.2139/ssrn.3560196

A. White, Banks as Utilities

Alan M. White, CUNY School of Law

Banks are creatures of the market and creatures of the state. The call to reconceive banks as public utilities requires a critical redefinition, both of banks and of public utilities. Part of that redefinition must include naming the values and ends that bank regulation ought to serve. The neoclassical economists’ understanding of utility regulation is founded on the value of efficiency, and the theory of price competition and natural monopolies. In some industries, economies of scale and large capital costs result more or less inevitably in monopoly, and thus competition cannot be relied on to achieve fair and efficient pricing. The neoclassical model of bank regulation does not regard banks as utilities. Systemic risk, information problems, and the moral hazard produced by public insurance are the market failures that justify bank regulation, with the primary goal being safety and soundness. Utility regulation, going back to its Progressive Era and earlier origins, values the need for continuous and universal supply of essential infrastructure to all consumers and businesses without discrimination and at reasonable prices, and to constrain the political power of oligopoly trusts and corporations. This paper will describe a progressive utility regulation model for banking as an alternative to oligopoly with limited prudential and consumer protection regulation, the current path. I will consider the problems with the progressive model of banks as utilities, including regulatory capture. Banks as utilities, broadly conceived, should be publicly governed, to provide reliable and universal payments, savings and credit services at social prices, and to reduce inequality of economic opportunity.

White, Alan M., Banks as Utilities (January 4, 2016). Tulane Law Review, Vol. 90, 2016. Available at SSRN: https://ssrn.com/abstract=2847815

J. Feinig, Toward a moral economy of money? Money as a creature of democracy

Jakob Feinig, Binghamton University

This paper proposes a novel approach for understanding money users’ relation to monetary governance institutions. It first describes the stakes involved in monetary governance from a neo-chartalist/MMT perspective. In a second step, it discusses existing contributions on the relation between money issuer and money users, highlighting the literatures on central bank legitimacy and the social construction of money. It argues that neither allows for an analysis of the relation between monetary institutions and money users that takes the latter’s knowledge seriously. It then argues that the concept of moral economy can enrich scholarly analysis. Moral economies of money are defined as collective practices in which money users articulate demands as part of an understanding of money as a public good. Finally, the paper deploys the moral economy of money perspective to reconstruct the changing relation between institutions of monetary governance and money users since the Great Depression in the U.S. It shows how New Dealers silenced a moral economy of money, discusses fragmented moral economies after World War II, and the partial reemergence of such moral economies after the Great Financial Crisis. The paper concludes by discussing political implications and suggestions for further research.

Jakob Feinig (2020) Toward a moral economy of money? Money as a creature of democracy, Journal of Cultural Economy, DOI: 10.1080/17530350.2020.1729223

Public Purpose Finance: The Government’s Role as Lender

Nadav Orian Peer, University of Colorado Law School

This Article explores the workings of Public Purpose Finance, and its role within the U.S. political economy. “Public Purpose Finance” (PPF) refers to the broad range of institutions through which the government extends credit to private borrowers in sectors like housing, education, agriculture and small business. At a total of $10 trillion, PPF roughly equals the entire U.S. corporate bond market, and is around one half of the U.S. Gross national debt (2018 figures). The Article begins by surveying and quantifying the scope of PPF. It then demonstrates that PPF enjoys a considerable degree of insulation from the federal budgetary process. The heart of the Article is an attempt to explain the political logic behind the off-budget treatment that PPF enjoys. In a nutshell, while ordinary budget spending is ultimately funded through taxes levied across the tax base, government lending is funded through loan repayment by the borrowers themselves (A model formalizing these claims is available in the Appendix). This off-budget treatment makes PPF a powerful tool for upward mobility, but it also creates a democratic deficit, and has long been a driver of racial inequality. A key theme of the Article is the need to maintain the off-budget treatment, while developing alternative modes of political participation. Government lending, like the budget, should become a key tool for society to formulate its economic agenda.

Orian Peer, Nadav, Public Purpose Finance: The Government’s Role as Lender (April 13, 2020). Law and Contemporary Problems, Vol. 83, No. 1, 2020. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3575046

Central Bank Digital Currencies: The New Era of Modern-day Banking

Benjamin Geva, Osgoode Hall Law School of York University

An internal report submitted in March to the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS), presents an initial analysis of Central Bank Digital Currency (CBDC). What You Need To Know:

  • The report poses no immediate legal implications.
  • Lawyers and policy makers ought to be prepared to engage in discussions which lead to decision making as to such developments as well as to address the developments as they arise.
  • The introduction of a CBDC in one jurisdiction could adversely affect others. Central banks that have introduced or are seeking to introduce a CBDC should consider cross-border issues.
  • Central banks and other authorities should continue their broad monitoring of digital innovation, keep reviewing how their own operations could be affected and continue to engage with each other closely.

Niepelt, Dirk, “Digital money and central bank digital currency: An executive summary for Benjamin Geva. “Central Bank Digital Currencies: The New Era of Mondern-day Banking” 37:3 Nat. B. L. Rev 25-27 (2018)
Available at: http://works.bepress.com/benjamin_geva/117

Digital money and central bank digital currency: An executive summary for policymakers

Dirk Niepelt, University of Bern

Central banks already issue digital money, but only to a select group of financial institutions. Central bank digital currency would extend this to households and firms. This column examines the proposal for such currency and assesses the opportunities and risks. It argues that while preparations for the launch of Libra have not proceeded according to plan, it has become clear that for central banks, maintaining the status quo is not an option.

Niepelt, Dirk, “Digital money and central bank digital currency: An executive summary for policymakers”, Vox, CEPR Policy Portal (03 February 2020). Available at: https://voxeu.org/article/digital-money-and-central-bank-digital-currency-executive-summary

Financial Aspects of the COVID Crisis

Erik Gerding and Nadav Orian Peer

Financial Aspects of the COVID Crisis was a community teach-in in CU Law, held online on March 24, 2020. The teach-in includes presentations by Erik Gerding and Nadav Orian Peer, followed by a discussion with viewers. The main topics addressed were: 

  • The macroeconomic toolkit, and the unique challenges presented by COVID;
  • The Federal Reserve’s emergency support of the financial sector, and its historic expansion to businesses, firms and municipalities;
  • The unprecedented relief package (which just passed today, March 27);
  • Cashflow disruptions, and legal issues around forbearance, contracts, and bankruptcy law;
  • Issues to address when the dust settles: in financial regulation, and in the social safety net.

You can find the full video of the teach-in here: https://www.youtube.com/watch?v=q2hOe9Qr-BE

[Recall This Buck I]: Chris Desan on Making Money

Recall this Book Podcast Talks with Christine Desan

Recall This Book is a podcast exploring important books on a pressing topic. Each episode focuses on a contemporary problem or event and zeroes in on a book or books that shed light on it. We look backwards to see into the future: we can understand things about the future by choosing texts that shed a sideways light on our present situation, and attempt to shake up the terms of present debate by showing how a topic was approached in earlier times when a different version of this question had come up before. We aim to have lively barstool discussions–a warm but involved and potentially argumentative hashing out of the best way to think through difficult present-day issues. We bring on writers to talk about their own books, or scholars to talk about the books that are helping them navigate best the world in which we live.

This is the first of several RTB episodes about the history of money. We are ranging from the earliest forms of labor IOUs to the modern world of bitcoin and electronically distributed value. Our idea is that forms matter, and matter in ways that those who profit from those forms often strive to keep hidden. Today, we begin by focusing on the rise of capitalism, the Bank of England, and how an explosion of liquidity changed everything.

This is the first of several RTB episodes about the history of money. We are ranging from the earliest forms of labor IOUs to the modern world of bitcoin and electronically distributed value. Our idea is that forms matter, and matter in ways that those who profit from those forms often strive to keep hidden. Today, we begin by focusing on the rise of capitalism, the Bank of England, and how an explosion of liquidity changed everything.

We are lucky to do so with Christine Desan of Harvard Law School, who recently published Making Money: Coin, Currency, and the Coming of Capitalism (Oxford University Press, 2014).  She is also managing editor of  JustMoney.org, a website that explores money as a critical site of governance. Desan’s research explores money as a legal and political project. Her approach opens economic orthodoxy to question by widening the focus on money as an instrument, to examine the institutions and agreements through which resources are mobilized and tracked, by means of money. In doing so, she shows that particular forms of money, and the markets within which they circulate, are neither natural or inevitable.

You can find the episode here: https://recallthisbook.org/2020/03/20/23-recall-this-buck-i-chris-desan-on-making-money-ef-jp/

Are Central Banks Impotent?

Adair Turner and Paul Tucker

As the coronavirus pandemic spreads, two economics heavyweights debate the proposition. Replies will be updated in real time.

Turner, Adair and Tucker, Paul. “Are Central Banks Impotent?” Prospect 23 Mar. 2020: https://www.prospectmagazine.co.uk/magazine/are-central-banks-now-impotent-coronavirus-pandemic-monetary-policy-economy