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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Postal Banking’s Public Benefits

Author: Mehrsa Baradaran

The financial crisis of 2008 made clear to the public, in a way that had not been apparent for some time, that banks depend for their existence and operation on a structural framework created by the federal government. But policymakers as well as the public at large do not have a clear view of the reason why the federal government regulates the banking industry in the first place—namely, to serve the credit needs of the American public. The continuous, underspecified debate between more and less regulation of the banking sector overlooks one very grave problem: the financial services sector has elected to serve only the middle class and the wealthy, leaving the underbanked poor in the hands of predatory and payday lenders, check-cashing services, and other providers of typically usurious loans. Since the federal government cannot force banks to serve the public through low-cost credit and banking services, they have chosen not to.

Baradaran, Mehrsa. “Postal Banking’s Public Benefits” American Affairs II, no. 3 (2018), https://americanaffairsjournal.org/2018/08/postal-bankings-public-benefits/. 

Capitalization and its Legal Friends

Author: Leon Wansleben

Katharina Pistor’s argument in The Code of Capital about the constitutive role of legal practice for the creation and distribution of wealth requires contextualization; her claims about the stand-alone role of law in determining the political economy of global capitalism are exaggerated. My first intervention concerns the concept of capital. Capital evidently is not just a legal code, but also constitutes a financial accounting entity that emerges from processes of investment, which are embedded in (economic, social, political) structures that are facilitative of unequal distributions of rewards and risks. Legal coding should be considered as part of such ‘capitalization’ and as becoming more critical in the contemporary economy, in which capitalization increasingly happens through financial engineering and through capturing rents from ‘intangible capital’. Secondly, we can only understand the distributional implications of legal coding if we recognize a) the importance of rent-seeking in secularly stagnating economies and b) the particular class configurations in what Milanovic, B. (2019). Capitalism, alone. Cambridge, MA: Harvard University Press calls ‘liberal meritocratic capitalism’. The consolidation of a capital-rich and hard-working upper class in such a capitalist formation (the extreme case being United States) not just indicates a close alliance or overlap between holders of wealth and the professions (fund managers, legal advisers etc.) that serve them. It also indicates that social class structures – the paths of socialization they reproduce; their in-built social sorting mechanisms; their close association with ideologies of legitimate privilege – play a key role in reproducing economic distributional outcomes.

Private Wealth and Public Goods: A Case for a National Investment Authority

Authors: Robert  C. Hockett & Saule T. Omarova

Much American electoral and policy debate now centers on how best to reignite the nation’s economic dynamism and rebuild its competitive strength. Any such undertaking presents an extraordinary challenge, demanding a correspondingly extraordinary institutional response. This Article proposes precisely such a response. It designs and advocates a new public instrumentality-a National Investment Authority (“NIA’)-charged with the critical task of devising and implementing a comprehensive long-term development strategy for the United States.

Hockett, Robert C. and Omarova, Saule T., “Private Wealth and Public Goods: A Case for a National Investment Authority,” 43 Journal of Corporation Law 437 (2018). 

Seeing and Not-seeing Like a Political Economist: The Historicity of Contemporary Political Economy and its Blind Spots

Authors: Jacqueline Best, Colin Hay, Genevieve LeBaron, & Daniel Mügge

Contemporary political economy is predicated on widely shared ideas and assumptions, some explicit but many implicit, about the past. Our aim in this Special Issue is to draw attention to, and to assess critically, these historical assumptions. In doing so, we hope to contribute to a political economy that is more attentive to the analytic assumptions on which it is premised, more aware of the potential oversights, biases, and omissions they contain, and more reflexive about the potential costs of these blind spots. This is an Introduction to one of two Special Issues that are being published simultaneously by New Political Economy and Review of International Political Economy reflecting on blind spots in international political economy. Together, these Special Issues seek to identify the key blind spots in the field and to make sense of how many scholars missed or misconstrued important dynamics that define contemporary capitalism and the other systems and sources of social inequality that characterise our present. This particular Special Issue pursues this goal by looking backwards, to the history of political economy and at the ways in which we have come to tell that history, in order to understand how we got to the present moment.

Jacqueline Best, Colin Hay, Genevieve LeBaron & Daniel Mügge (2021) Seeing and Not-seeing Like a Political Economist: The Historicity of Contemporary Political Economy and its Blind Spots, New Political Economy, 26:2, 217-228, DOI: 10.1080/13563467.2020.1841143

Counterfeit Currency and the Criminal Law in Commercialising Scotland

Author: Chloë Kennedy

This article examines criminal law responses to counterfeit currency (notes and coins) in Scotland during a period of rapid commercialization (c1780-1850). Using a mix of qualitative and quantitative methods, it argues that changes in working and economic conditions and currency usage are vital to understanding both the rate and patterns of criminal offending and the legal responses these generated.

Chloë Kennedy, “Counterfeit Currency and the Criminal Law in Commercializing Scotland”, in A. M. Godfrey (ed.), Miscellany Eight [Stair Society vol. 67] (Edinburgh, 2020), pp. 285–317 http://doi.org/10.36098/stairsoc/misc8.8

Who Needs the Government Securities Market?

Author: Aaron Wistar

The $21-trillion market in U.S. government securities is the “deepest and most liquid fixed-income market in the world.” Except, of course, when it isn’t. As last year’s historic meltdown in the Treasury market demonstrated, the status of Treasury securities as the ultimate safe, liquid asset—to which investors will predictably flee in times of uncertainty, war, panic, or pandemic—is not a given. The liquidity of the world’s most liquid market depends, in the last instance, on the Federal Reserve’s guarantee.

More than a year later, the reverberations of the March 2020 panic in the Treasury market are still being felt. At the end of July, the Federal Reserve announced that it would establish two facilities to ensure market breakdowns like that of March 2020 (or October 2019) never happen again: a domestic standing repo facility (SRF) and a repo facility for foreign and international monetary authorities (FIMA). Combined, these facilities will serve as a permanent liquidity backstop for the U.S. government securities market. By giving major institutional investors—both foreign and domestic—the right to post their Treasury securities as collateral in repurchase agreements with the Fed, they reassure market participants that the U.S. public debt will always be immediately convertible to cash without significant capital loss, even in periods of extreme market turbulence. The very existence of such a guarantee should bolster private liquidity provision, making the actual usage of the facilities largely superfluous. As a recent report from the G30 Working Group on Treasury Market Liquidity explains, private dealers and other financial firms need to be confident in their ability to finance their government security portfolios with repo credit if they are to reliably make markets. At the end of the day, “complete confidence can come only from direct access to liquidity from the Federal Reserve, which has essentially unlimited capacity to provide funding.” This is what the SRF and the FIMA repo facility offer: complete confidence that the spigot will never turn off.

The goal of these new standing facilities is to enhance the moneyness of U.S. Government securities. At the most basic level, the March 2020 dysfunction was about the non-identity of Treasuries and cash. The crisis occurred when money market funds, hedge funds, and foreign central banks all attempted to liquidate Treasury holdings at once to meet a surge of actual or expected cash demands. Each expected that their Treasury holdings would be a reliable store of value that could be converted to cash as needed. But when private dealers proved unable or unwilling to absorb the flood of selling on their own balance sheets, markets seized up. Ultimately, the Federal Reserve had to step in as a dealer of last resort, purchasing $1.5 trillion worth of government securities in March and April 2020 to restore market confidence that Treasuries were still as good as dollars.

The sheer quantity of bond purchases necessary to stabilize the Treasury market in early 2020 (along with the ongoing QE purchases thereafter) led to a common complaint in the financial sector that the “the church-and-state separation” between fiscal and monetary policy had broken down. The hallowed institution of central bank independence was crumbling as the Fed experimented with “debt monetization”—“printing money” to finance government deficits, rather than allowing the forces of supply and demand in the bond market to keep deficits in check.

What this (possibly disingenuous) line of criticism glosses over, however, is the fact that the debt was already monetized well before the crisis, whether it was on the Fed’s balance sheet or not. Indeed, one reason it was so crucial for the Fed to perform the equivalence of Treasuries and cash in March 2020 is that Treasury securities of all maturities have functioned for decades as a kind of money in the shadow banking system. Much as commercial banks operate by issuing short-term deposit liabilities against long-term assets, shadow banks today finance Treasury holdings by posting them as collateral in short-term repurchase agreements. Because of this, even long-term Treasury bonds have effectively become a money market instrument, a form of shadow money that circulates among financial institutions. So when the Fed rescued the government securities market, it was not simply bailing out the fiscal state. Rather, it was stabilizing the architecture of the shadow banking sector—a sector which cannot function without an implicit (now explicit) guarantee that Treasury bonds will remain convertible to short-term cash in repo markets.

Today, as Federal Reserve purchases of Treasury securities continue to the tune of $80 billion per month, the Fed faces ongoing criticism in the financial press for “topping up the punch bowl” when the party is in full swing. In response, the central bank has announced its intention to start reducing purchases later this year. The new repo facilities ensure, however, that the government securities market will not suffer once the Fed begins to taper. As Zoltan Poszar astutely points out, it seems they were introduced precisely at this moment to insulate the government securities market from the potentially disruptive effects of the Fed’s wind down. The Fed, in effect, is “foaming the runway” for an exit from pandemic monetary policy—replacing “funded QE” (permanent reserve creation though outright purchases) with “financed QE” (temporary reserve creation through repo). Another way of looking at this is to say that the Fed is hoping it can expand its contingent assets and liabilities as a substitute for actual balance sheet expansion. If banks and other financial firms are confident that their Treasuries can be converted to money on demand—at a cost that is well below their yield—they’ll be happy to hold more Treasuries and less cash. This will help prevent bond prices from collapsing as QE winds down (or if the Fed once again decides to shrink its portfolio in pursuit of “policy normalization”). A shrinking balance sheet will appease right-wing critics, while an expanding shadow balance sheet will shield the financial sector from price volatility and liquidity risk.

Who benefits from this arrangement? To be sure, the global reputation of the U.S. dollar is probably enhanced by maintaining the appearance (however misleading) that the private sector, and not the Fed, is the ultimate wellspring of demand for Treasury debt. And most mainstream economists would likely point out that depth and liquidity of the government securities is a boon for the U.S. taxpayer, as the high liquidity premium on Treasuries makes for lower financing costs. Still, once you read a bit of Modern Monetary Theory, these arguments start to ring hollow. Yes, there is a liquidity premium on Treasury bonds. But there is much higher liquidity premium on actual cash. If fiscal deficits were monetized directly, say with a trillion-dollar coin, the idea of liquidity premia marginally reducing yields becomes moot.

Much more directly than it benefits “the taxpayer,” guaranteed liquidity in government security markets benefits finance capital, and—to risk redundancy—the very, very wealthy. In the 2010s, the top 1% of U.S. households owned 55% of the domestic household share of public debt. The domestic corporate share of public debt, for its part, has long been dominated by the financial sector, which has held roughly 97% since the 1980s. Older generations might still have an image of lower- and middle-income Americans stashing savings bonds in filing cabinets or safe-deposit boxes. But today, the humble and relatively egalitarian savings bond accounts for an ever-diminishing fraction of the public debt. The lion’s share is in the form of marketable securities, traded among Wall Street firms and high net worth individuals. (This is all documented in Sandy Brian Hager’s excellent book on the subject).

The growing foreign demand for marketable Treasuries is equally an expression of growing inequality. As Matthew Klein and Michael Pettis argue in Trade Wars Are Class Wars, Countries like China accumulate large holdings of U.S. debt as a consequence of a “high savings,” export- and investment-centered model of development that is based on regressive transfers of income from workers and pensioners to major corporations and the state. What’s more, a substantial portion of foreign demand for Treasuries is not really “foreign” at all—it comes from U.S. Corporations and wealthy individuals stashing funds in tax havens. (Ever wonder why the Cayman Islands holds more Treasury debt than India?)

Perhaps there is another way. For the past 70 years, since the Treasury-Federal Reserve Accord of 1951, the institution of central bank independence in the United States has been defined by the Federal Reserve’s informal mandate to “minimize the monetization of the public debt.” Today, the new standing repo facilities make clear that the Fed is more committed than ever to keeping the debt monetized—not necessarily to provide cheap financing to the Treasury, but rather to maintain private sector financial stability. So, what if, instead of keeping monetization behind the scenes for the purpose of backstopping shadow banks and financial elites, the Fed publicly embraced debt monetization and channeled it to a broader public purpose?

One idea is mandating that the Fed provide accessible, interest-bearing checking accounts (“FedAccounts”) for the general public. This would involve a huge expansion of Federal Reserve liabilities as it opened new checking accounts for millions of Americans, and correspondingly huge purchases of Treasury securities. Aside from eliminating banking deserts, streamlining the payments system, and putting predatory check cashing services out of business, one benefit of the FedAccounts proposal is that it would displace the engine of private debt monetization that propels much of the shadow banking sector. Consider government money market funds (MMFs), for example. This is a $4 trillion sector whose sole purpose is to convert U.S. Treasuries (and Treasury repo) into cash equivalents. Why should private firms be allowed to profit from this activity when the Fed is already guaranteeing the moneyness of Treasuries? What service do they provide? FedAccounts would displace these funds by offering to pay all depositors the same rate of interest that the Fed currently pays to commercial banks—known as the interest-on-reserves, or IOR, rate. At 0.15%, the current IOR rate is significantly higher than the 0.01% average return on government MMFs over the past year. What’s more, where MMFs issue cash equivalents (technically equity shares whose value is stabilized at $1), FedAccounts would offer fully guaranteed government money. Essentially, they would cut out the middleman, delivering higher yields directly to consumers.

More ambitiously, the Federal Reserve could leverage its debt monetization powers to fuel a green transition. The legal scholar Saule Omarova has proposed the creation of a National Investment Authority—a kind of public asset manager whose sole purpose would be directing investment capital toward green development. Omarova suggests that the Fed could support the liquidity of debt issued by the NIA in the same way that it currently supports the liquidity of Treasury and Agency securities. Building on Omarova’s proposal, we could imagine the Fed promoting widespread participation in such a National Investment Authority by marketing investment accounts to consumers that offered higher yields than FedAccounts but had more time restrictions or penalties for withdrawals. To incentivize participation, these public investment accounts could be made risk-free—guaranteed against nominal loss—much as the possibility of redemption guarantees holders of savings bonds against nominal capital loss today.

These are just a few of the more developed and (with a bit of political imagination) eminently attainable reform programs. But the main thing I want to elicit here is a sense of possibility. There is no law mandating that the Treasury and Federal Reserve coordinate to provide interest-bearing, high-denomination money for the shadow banking sector. Nor, as Nathan Tankus points out, is there any necessary financing purpose to the Treasury issuing a range of maturities paying different interest rates. Issuing and stabilizing Treasury bonds is subsidizing private finance. The clearer we can make that, the better we can demand that the Fed subsidize the things that really matter.

Aaron Wistar, “Who Needs the Government Securities Market?” Counterpunch (Sept. 17, 2021), https://www.counterpunch.org/2021/09/17/who-needs-the-government-securities-market/.

The Frail Bonds of Liberalism: Pensions, Schools, and the Unraveling of Fiscal Mutualism in Postwar New York

Authors: Michael R. Glass & Sean H. Vanatta

Between 1940 and 1965, state-level officials changed the relationship between two pillars of the postwar social contract: secure retirement and modern public schools. In the early twentieth-century United States, state pension managers, following an investment regime we call “fiscal mutualism,” funneled the savings of government workers into government securities. By purchasing municipal bonds, pension officials lowered the borrowing costs for local governments. We analyze this regime through a close examination of New York State’s pension fund. During the 1950s, the comptrollers who managed the New York State Employee Retirement System (NYSERS), the nation’s largest state pension, subsidized suburban school construction by purchasing the bond issues of local school districts. But as changes in the financial landscape made this arrangement less viable, New York Comptroller Arthur Levitt Sr. began lobbying for the liberalization of the pension’s investment powers. After state lawmakers approved the regulatory changes, Levitt disinvested from municipal bonds in favor of higher-yielding corporate securities. Pension liberalization secured higher returns for state retirees, but it also left school districts to navigate bond markets without the backstop of fiscal mutualism. As school budgets, and the property taxes supporting them, soared to repay the interest costs, tax revolts became a permanent response to the fiscal volatility. These transformations, we argue, stemmed from postwar liberalism’s dependence on financial markets to deliver retirement security, public education, and other social benefits.

Glass, Michael R., and Sean H. Vanatta. “The Frail Bonds of Liberalism: Pensions, Schools, and the Unraveling of Fiscal Mutualism in Postwar New York.” Capitalism: A Journal of History and Economics 2, no. 2 (2021): 427-472. doi:10.1353/cap.2021.0009.

Central Banks

Author: Jens van ’t Klooster

This chapter provides an overview of the state of the art in constitutional theory with regard to the topic of central banks. It challenges accounts of central bank independence as involving limited discretion and distributional choices, as well as the narrow range of normative questions that such accounts raise. It also provides a roadmap for a vast range of procedural and substantive issues raised by independent central banks.

This chapter is due to appear The Cambridge Handbook of Constitutional Theory (3 vols.), edited by Richard Bellamy and Jeff King for Cambridge University Press.

Jens van ‘t Klooster, “Central Banks,” OSF Preprints (September 12, 2020), doi:10.31219/osf.io/4t2fr, available at https://osf.io/4t2fr/. 

In Global First, El Salvador Adopts Bitcoin as Currency


El Salvador on Tuesday became the first country to adopt Bitcoin as legal tender, allowing the cryptocurrency to be used in any transaction, from buying a cup of coffee to paying taxes.

The bold move, largely celebrated by the international bitcoin community, has found a more skeptical reception at home and in the traditional financial world, amid concerns that it could bring instability and unnecessary risk to the Central American country’s fragile economy.

Oscar Lopez & Ephrat Livni, “In Global First, El Salvador Adopts Bitcoin as Currency” N.Y. TIMES (September 7, 2021). https://www.nytimes.com/2021/09/07/world/americas/el-salvador-bitcoin.html

Who’s to Blame for Lost Silver and Gold? Laments of Financial Troubles in Spain 1588

Author: Stephen Mayeaux 

Herencia! What curious snapshots of history lie within your depths? As a summer 2021 intern, I had the exciting opportunity to work through the Herencia collection. Many documents were beyond intriguing; I’d love to research them all!

One of the first to catch my eye was a set of documents from the Cortes, the legislative body of Spain. Published in 1593, Acts of the “Cortes” held in the village of Madrid in the year 1588 gives us a look at matters the Cortes considered important enough to address.

Among other interesting subjects, these documents show concern over the kingdom’s financial difficulties. The Cortes looked suspiciously at foreign nations to help explain a lack of currency that had been felt in Spain, writing that China and the East Indies were taking grand quantities of silver. On another page, the Cortes petitioned the king to ban the import of cheap, poor-quality foreign goods—described as “things of alchemy, […] rosaries, false stones and stained glass, chains,” and other items—and reprimanded the buying of such “useless things”:

Stephen Mayeaux, “Who’s to Blame for Lost Silver and Gold? Laments of Financial Troubles in Spain 1588,” LIBR. CONGRESS (August 26, 2021). https://blogs.loc.gov/law/2021/08/criminals-and-coins-understanding-17th-century-spanish-economy-through-counterfeit-currency/ 

Criminals and Coins: Understanding 17th Century Spanish Economy through Counterfeit Currency

Author: Nina Perdomo

During my time working with the Herencia collection, I have come across a variety of interesting documents. One that has been the most interesting to me, however, is the Brief on behalf Pedro Goyeneche Infanzón in the criminal case for counterfeiting of money filed against him. This document is a highlight of the Herencia collection because it explores the case of Goyeneche while allowing modern readers to gain insight into the economic status of Spain in the 1600s.

Nina Perdomo, “Criminals and Coins: Understanding 17th Century Spanish Economy through Counterfeit Currency,” LIBR. CONGRESS (August 24, 2021). https://blogs.loc.gov/law/2021/08/criminals-and-coins-understanding-17th-century-spanish-economy-through-counterfeit-currency/ 

The Money War: An Interpretation of Democracy, Depreciation, and Taxes in the U.S. Civil War

Author: Ariel Ron and Sofia Valeonti 

Both sides in the U.S. Civil War financed military spending by issuing new fiat currencies. The Union “greenback” underwent moderate inflation (by wartime standards), but the Confederate “grayback” suffered hyperinflation. Existing explanations for these price movements typically treat only one of the two cases and adopt either a quantity-theory or rational-expectations ap-proach. We compare Union and Confederate policies directly and highlight the importance of taxation for assuring the value of inconvertible money. Combining monetary and fiscal history literatures, we find that tax policies were determined by long-term development of democratic governing institutions. Higher levels of democracy in the North, as compared to the slavehold-ing South, meant greater tax policy legitimacy and administrative competence. The Union drew on this legacy to back its money effectively, while the Confederacy failed to do so. We contrib-ute to the theory of chartalist money by drawing attention to the political determinants of effec-tive fiscal policy.

Ariel Ron and Sofia Valeonti, “The Money War: An Interpretation of Democracy, Depreciation, and Taxes in the U.S. Civil War (August 16, 2021). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3906049

Will the Growth of Uber Increase Economic Welfare?

Author: Hubert Horan

The urban car service firm Uber is currently the most highly valued private startup company in the world, with a venture capital valuation of over $68 billion based on direct investment of over $13 billion from numerous prominent Silicon Valley investors. Uber’s investors are not merely seeking a share of a still-competitive urban car service industry, but are openly pursuing global industry dominance and its huge valuation is based on expectations that it will be successful. The business media that ignored this industry for over a century now tracks Uber’s every move. The overwhelming majority of media and tech industry coverage presume that Uber’s powerful innovations make industry dominance inevitable and could produce financial returns similar to those achieved by Amazon, Facebook and other recent Silicon Valley backed startups.

None of these media and industry expectations are based on objective analysis of Uber’s actual competitive economics, and they are inconsistent with Uber’s actual financial results. No one can explain how Uber could earn billions for its investors in an industry that historically has had razor-thin margins producing a commodity product. No one has been able to explain why an industry that has been competitively fragmented and structurally stable for a hundred years should suddenly consolidate into a global monopoly. No one can demonstrate a clear link between specific Uber product features and its meteoric growth, explain why no one else had ever recognized these opportunities, or document how they are powerful enough to allow Uber to rapidly drive all incumbent taxi and limo companies out of business. No one has attempted to explain how a company with such an allegedly powerful business model is still losing billions of dollars a year in its seventh year of operation, and why these losses are still increasing. No one has conducted an independent investigation of whether an unregulated dominant Uber would actually produce long-term improvements in the quality of urban transport.

This paper lays out the economic evidence showing that Uber has no ability — now or in the foreseeable future — to earn sustainable profits in a competitive marketplace. Uber’s investors cannot earn returns on the $13 billion they have invested without achieving levels of market dominance that would allow them to exploit anti-competitive market power. The growth of Uber is entirely explained by massive predatory subsidies that have totally undermined the normal workings of both capital and labor markets. Capital has shifted from more productive to less productive uses, the price signals that allow drivers and customers to make welfare maximizing decisions have been deliberately distorted, and the laws and regulations that protect the public’s interest in competition and efficient urban transport have been seriously undermined. Absolutely nothing in the “narrative” Uber has used to explain its growth is supported by objective, verifiable evidence of its actual competitive economics.

Horan, Hubert, Will the Growth of Uber Increase Economic Welfare? (September 14, 2017). Hubert Horan, Will The Growth of Uber Increase Economic Welfare?, 44 Transp. L.J., 33-105 (2017), Available at SSRN: https://ssrn.com/abstract=2933177 or http://dx.doi.org/10.2139/ssrn.2933177.

Money’s Design Elements: Debt, Liquidity, and the Pledge of Value from Medieval Coin to Modern “Repo”

Author: Christine A. Desan

Across the ages, moneys exhibit a recurring set of design elements: they are made of debt; that debt is specifically fashioned to create liquidity; and the debt medium that results comes with a pledge of value (commonly collateral, convertibility, a commitment of public faith, and/or insurance) to enhance its credibility. While those design elements appear again and again, they vary greatly in form. Debt, for example, can be structured as a straightforward liability or issued by agents (e.g., a central bank acting for a government). Every difference in design changes the dynamics of the medium and the way people treat it. Every difference in design thus affects exchange, its societal context, and how value travels. Like the law of payments, the legal design of money shapes the economy itself.

Desan, Christine A., Money’s Design Elements: Debt, Liquidity, and the Pledge of Value from Medieval Coin to Modern “Repo” (August 1, 2021). Banking and Finance Law Review, v. 38 (forthcoming 2022), Available at SSRN: https://ssrn.com/abstract=3897399.

Debt struggles: How financial markets gave birth to a working-class movement

Author: Quentin Ravelli

Though the social consequences of financialization are well-known, their influence on radical politics remains unclear. The failure of the democratization of finance led to unprecedented levels of debt and to new types of social movement. Across the globe, the collapse of mortgage markets, and the promise of private property for all, generated strong contestation. In Spain, the movement against debt, structured around the Platform of People Affected by Mortgages, is exceptionally powerful, contributing to unprecedented political change. What makes this anti-eviction move- ment so successful? How can a brand new organization, off the well-worn paths of trade unions and political parties, mobilize debtors, despite their isolation, despon- dency and lack of organizational skills? Combining visual ethnography with a survey of 568 underwater borrowers from 12 cities, this article shows who the over-in- debted activists are. Construction workers and migrant women played a central role in transforming individual guilt and shame into political empowerment.

Ravelli, Quentin. 2019. “Debt Struggles: How Financial Markets Gave Birth to a Working-Class Movement.” Socio-Economic Review. https://doi.org/10.1093/ser/mwz033.

Crisis of Capitalism and (De-)Politicisation of Monetary Policymaking: Reflections from Hungary and Turkey

Author: Pınar E. Dönmez & Eva J. Zemandl

This article explores the changes in monetary policymaking in Hungary and Turkey in the context of the post-2008 global financial crisis and restructuring. Both countries went through a thorough restructuring process in the pre-2008 context. While this process has introduced and consolidated depoliticised forms of governing to a certain degree in both countries, we suggest that the latest crisis has contributed to the emergence of a politicisation process. In the Hungarian case, these processes are reflected in both discursive attempts and the instalment of visible centralised control over the management of money. In Turkey, intensifying discursive attempts to politicize monetary policy have not led to an explicit change in the formally depoliticised character of central banking until recently but politicised other policy areas. In both countries, the process has accompanied the entrenchment of increasingly oppressive discourse and practices as part of the overall management of the crisis- ridden capitalist social relations. The paper aims to explore these similarities and differences within a critical political economy approach to state, governing strategies and (de)politicisation and to contribute to advancing research beyond the established case studies in the existing literature.

Pınar E. Dönmez & Eva J. Zemandl (2019) Crisis of Capitalism and (De-)Politicisation of Monetary Policymaking: Reflections from Hungary and Turkey, New Political Economy, 24:1, 125-143, DOI: 10.1080/13563467.2017.1421624. 

Modern Capitalism’s Multiple Pasts and Its Possible Future: The Rise of China, Climate Change, and Economic Transformation

Author: R. Bin Wong

Modern capitalism is most often understood as a European development beginning in the late eighteenth century, followed by a global spread accelerating after World War II. Less consensus exists on the reasons for this spread and on how recent episodes of economic development are similar to or differ from those that occurred in European history. Few have pondered the possible relevance of the ideologies and institutions of political economies in different world regions before the modern era and how the spread of modern capitalism has shaped their contemporary approaches to the future. This article sketches Chinese comparisons with and connections to patterns initially European in origin. It highlights the economic challenges of climate change, in particular comparing Chinese and European water policy reforms. The proposed payoff of this exercise is an additional perspective from which to ponder capitalism’s future and what may emerge in its stead.

Wong, R. Bin. “Modern Capitalism’s Multiple Pasts and Its Possible Future: The Rise of China, Climate Change, and Economic Transformation.” Capitalism: A Journal of History and Economics 2, no. 2 (2021): 257-290. doi:10.1353/cap.2021.0014.

A new public digital dollar could be a big boost to American democracy

Author: Jeffrey Sklansky

For the first time since the Lincoln administration introduced a national paper currency during the Civil War, the Federal Reserve may soon create a new kind of federal money: a digital dollar. Now as then, what matters most is not the material form of money but who makes and manages it.

Sklansky, Jeffrey. “A new public digital dollar could be a big boost to American democracy” The Washington Post (July 21, 2021), https://www.washingtonpost.com/outlook/2021/07/21/new-public-digital-dollar-could-be-big-boost-american-democracy/ 

Stimulus for all

Author: Prasad Krishnamurthy

Well into the 21st century, the federal government still lacks the capacity to deliver aid to the poorest and most vulnerable Americans in a crisis. To anyone who has followed the Federal Emergency Management Agency’s struggles to distribute relief in the aftermath of natural disasters, this fact has been obvious since Hurricane Katrina. But COVID-19 puts it in even starker relief. As many as 12 million eligible Americans did not receive a stimulus payment in 2020 — most of whom did not file taxes because of their low income — and there is no reason to believe that the latest round of payments has improved on this dismal figure. 

What is needed is a universal system of public distribution that operates through electronic payments into bank accounts. Unfortunately, more than 6 percent of U.S. households — comprising 14 million adults — are currently unbanked, and these figures are 17 percent and 14 percent, respectively, for Black and Hispanic households.  

The challenge of achieving both universal benefit distribution and universal bank accounts may seem daunting, yet the Treasury Department has already developed a solution to both problems. The Treasury’s little-known Direct Express debit card holds the key to attaining both universal benefit distribution and universal bank accounts in America.  

Krishnamurthy, Prasad, “Stimulus for all,” The Hill, May 14, 2021; https://thehill.com/opinion/finance/553620-stimulus-for-all?rnd=1621022888.

Where is Capital?

Author: Emma Rothschild

The article engages recent literature on microeconomics and intermediate goods in order to outline new models of growth in economic history and the possibility of productive exchanges between economists and historians. It focuses on the process of industrialization in England and France from the 1760s to the 1810s and argues for the diversity of kinds of capital, including the capital embodied in enslaved people, and for the importance of intermediate goods, especially materials, purchased services, and unconventional sources of energy. The article includes excerpts from primary sources.

Rothschild, Emma. “Where is Capital?” Capitalism: A Journal of History and Economics 2, no. 2 (2021): 291-371. muse.jhu.edu/article/798746.

The Student Debt Crisis is a Crisis of Non-Repayment

Author: Marshall Steinbaum

Think of the student debt crisis as an overflowing bathtub. On the one hand, too much water is pouring in: more borrowers are taking on more debt. That is thanks to increased demand for higher education in the face of rising tuition, stagnant wages, diminishing job opportunities for those with less than a college degree, and the power of employers to dictate that would-be hires have the necessary training in advance. On the other hand, the drain is clogged and too little water is draining out: those who have taken on debt are increasingly unable to pay it off.

The last post in the Millennial Student Debt project used a new database of student debtors and their loan characteristics (matched to demographic and economic data in the American Community Survey) to document the former phenomenon, both in aggregate and particularly as it pertains to disadvantaged communities along multiple dimensions. Specifically, it showed the rapid growth of student debt levels and debt-to-income ratios in the population at large, among people of all income levels. But this growth is concentrated among non-white borrowers, who have higher debt conditional on income and whose increased indebtedness over the past decade-plus is greater than for white borrowers. That racial disparity is particularly pronounced in the middle of the income distribution. It also showed that student-debt-to-income ratios have grown fastest in the poorest communities since 2008. This post uses the same data to document the latter: non-repayment by student loan borrowers is getting worse over time, especially so for non-white debtors.

Steinbaum, Marshall, The Student Debt Crisis is a Crisis of Non-Repayment, Jain Family Inst. 2020; https://phenomenalworld.org/analysis/crisis-of-non-repayment

Inconsistent Definitions of Money and Currency in Financial Legislation as a Threat to Innovation and Sustainability

Authors: Leander Bindewald

External shocks, like the climate catastrophe or the COVID-19 pandemic, as well as intrinsic fallacies like the securitization of bad debt leading up to the financial crisis in 2008, point to the need for updating our monetary and financial systems. Ensuring their adequacy and resilience is an important factor for sustainability at large. This paper examines the definitions of “money” and “currency” in financial legislation as a foundational factor in achieving systemic resilience by allowing or hampering monetary innovation and diversity. From the unencumbered vantage point that the practice of complementary currencies offers, definitions of the terms “money” and “currency” are here traced through the laws and regulations of the United States of America, from the beginnings of modern banking to the recent rulings on crypto-currencies. They are both found to be used and defined in contradictory ways that are inapt even in regard to conventional modern banking practices, let alone when applied to novelty in payment, issuance and valuation. Consequently, this paper argues that basic legal definitions need to be reviewed and consolidated to enable the innovation and diversification in monetary systems needed for long term macro-economic stability. With this in mind, a terminology that is consistent with monetary practice—current, past and future—as well as the procedural difficulties of reforming laws and regulations is proposed.

Bindewald, Leander, Inconsistent Definitions of Money and Currency in Financial Legislation as a Threat to Innovation and Sustainability, J. Risk Financial Manag. 2021, 14(2), 55; https://doi.org/10.3390/jrfm14020055

Written Testimony before the U.S. House of Representative Committee on on Financial Services Task Force on Financial Technology

Authors: Rohan Grey

Written Testimony of Rohan Grey for the hearing entitled “Digitizing the Dollar: Investigating the Technological Infrastructure, Privacy, and Financial Inclusion Implications of Central Bank Digital Currencies” before the U.S. House of Representative Committee on on Financial Services Task Force on Financial Technology.

Available at: https://financialservices.house.gov/uploadedfiles/hhrg-117-ba00-wstate-greyr-20210615.pdf

Written Testimony in a Senate Hearing on Building a Stronger Financial System: Opportunities of a Central Bank Digital Currency

Authors: Lev Menand

Written Testimony of Lev Menand for the hearing entitled “Building a Stronger Financial System: Opportunities for a Central Bank Digital Currency” before the U.S. Senate Committee on Banking, Housing and Urban Affairs, Subcommittee on Economic Policy.

Menand, Lev, Written Testimony in a Senate Hearing on Building a Stronger Financial System: Opportunities of a Central Bank Digital Currency (June 9, 2021). Available at SSRN: https://ssrn.com/abstract=3863395 or http://dx.doi.org/10.2139/ssrn.3863395

Assets need audiences: How venture capitalists boost valuations by recruiting investors to asset circles

Authors: Dave Elder-Vass

Narratives and conventions have received considerable attention in recent discussions of the valuation of financial assets. Narratives and conventions, however, can only be effective to the extent that they attract and persuade audiences, and this article makes the case for paying more attention to those audiences. In particular, the article argues that financial assets can only be established as assets if there is a group of potential investors that has been persuaded to accept them as such: to take them seriously as potential investments. The article coins the term asset circles to refer to such groups and supports the argument with a discussion of venture capital and its role in the production of unicorns: private companies with extraordinary valuations. Venture capital firms may be thought of as value entrepreneurs, and much of the venture capital process is oriented towards constructing both value narratives for the companies they invest in and asset circles prepared to accept those value narratives. Their aim in these processes is a profitable exit, in which the venture capital firm converts its investment back into cash at a considerable profit through either an acquisition or a flotation.

Dave Elder-Vass, “Assets need audiences: How venture capitalists boost valuations by recruiting investors to asset circles”,  Finance and Society, 2021, 7(1): 1-19

The Wild Card: Colonial Paper Money in French North America, 1685 to 1719

Authors: Bryan Cutsinger, Vincent Geloso and Mathieu Bédard

During the colonial era, the French colonial government in Canada experimented with paper money printed on the back of playing cards. The first experiment lasted from 1685 to 1719. In the first years, there was little inflation in spite of a rapidly expanding stock of playing card money. It is only in the later years of the experiment that prices rose. The behavior of the money stock and nominal output suggest that velocity fluctuated throughout the period. We argue here that these fluctuations can be explained by variations in the enforcement of legal tender laws. This interpretation provides insights into the debate over the inflationary impact of paper money in the colonial United States.

Cutsinger, Bryan and Geloso, Vincent and Bédard, Mathieu, The Wild Card: Colonial Paper Money in French North America, 1685 to 1719 (July 31, 2020). Available at SSRN: https://ssrn.com/abstract=2995560 or http://dx.doi.org/10.2139/ssrn.2995560

When Kuznets Went to Rome: Roman Economic Well-Being and the Reframing of Roman History

Author: Kim Bowes

This essay offers a critique of, and a set of alternative approaches to, the study of Roman economic well-being. It examines the calculations, methods, and assumptions used to estimate both gross domestic product and inequality, and how they fit into attempts at long-term cliometrics from Maddison to Piketty. The essay further asks what role the Roman world is asked to play in the two-thousand-year economic arcs laid out in these narratives, and what kind of Roman history this new cliometric work produces. I argue that these studies have been tacitly used to reanimate long-discarded macro and meta-historical teleologies of rise, decline, and “natural” inequality, now narrated through economics. The essay concludes by offering some different approaches grounded in household-level data.

Bowes, Kim. “When Kuznets Went to Rome: Roman Economic Well-Being and the Reframing of Roman History.” Capitalism: A Journal of History and Economics 2, no. 1 (2021): 7-40. doi:10.1353/cap.2021.0000.

Some Thoughts on Central Bank Digital Currency

Author: David Andolfatto

The literature examining the question of central bank digital currency (CBDC) has grown immensely in a very short time. Much progress has been made since I first learned of the idea in a blogpost authored by J. P. Koning in 2014. That modest article soon led me to openly speculate on the merits of a central bank cryptocurrency in a talk I delivered at the International Workshop on P2P Financial Systems in Frankfurt (Andolfatto 2015). My audience, which consisted mainly of entrepreneurs, seemed to receive my talk with a polite mixture of bemusement and anxiety. Surely, I couldn’t be serious? To be honest, I’m not sure that I was. But then the threat of Facebook’s Libra came along, and central bankers around the world suddenly began to take the idea very seriously indeed.

In this article, I will share some of my thoughts on CBDC — what it is, the rationale behind the endeavor, and how it might be implemented in broad terms. I’ll also address some of the concerns expressed by skeptics — in particular, the possible impact on banks and the implications for financial stability. I discuss these issues primarily in the context of the United States.

Andolfatto, David, “Some Thoughts on Central Bank Digital Currency”, Cato Journal, Vol. 41 No. 2. Available at: https://www.cato.org/cato-journal/spring/summer-2021/some-thoughts-central-bank-digital-currency 

Central Bank Activism

Author: Christina Parajon Skinner

Today, the Federal Reserve is at a critical juncture in its evolution. Unlike any prior period in U.S. history, the Fed now faces increasing demands to expand its policy objectives to tackle a wide range of social and political problems—including climate change, income and racial inequality, and foreign and small business aid.

This Article develops a framework for recognizing, and identifying the problems with, “central bank activism.” It refers to central bank activism as situations in which immediate public policy problems push central banks to aggrandize their power beyond the text and purpose of their legal mandates, which Congress has established. To illustrate, the Article provides in-depth exploration of both contemporary and historic episodes of central bank activism, thus clarifying the indicia of central bank activism and drawing out the lessons that past episodes should teach us going forward.

The Article urges that, while activism may be expedient in the near term, there are long-term social costs. Activism undermines the legitimacy of central bank authority, erodes its political independence, and ultimately renders a weaker central bank. In the end, the Article issues an urgent call to resist the allure of activism. And it places front and center the need for vibrant public discourse on the role of a central bank in American political and economic life today.

Skinner, Christina Parajon, Central Bank Activism (February 1, 2021). Duke Law Journal, Vol. 71, 2021, Available at SSRN: https://ssrn.com/abstract=3817123

Competition Law as Collective Bargaining Law

Authors: Nathan Tankus & Luke Herrine

This chapter provides an alternative basis for the economic analysis of competition law from conventional neoclassical theory. It makes three primary points.

First, markets—and processes of price formation in particular—are always governed. There is no “free market” in which prices “find their level”—nor is there any important sense in which some actually existing markets are better or worse approximations of an ideal-form “free market”. Instead, there are different ways of stabilizing and regularizing the pricing process, all of which require active coordination between market participants. Sometimes these institutions are weak and fragile, which leads to increasing market and price instability. When that occurs, either participants, suppliers, customers or the state will act to build a new strong form of market governance which attempts to increase market stability. It follows that it is impossible to eliminate coordination between market participants and attempts to eliminate such coordination will only result in a different form of coordination taking its place.

Second, which form of market governance prevails at any given point in time will depend, at least in part, on how the governing legal system allocates coordination rights. Coordination rights need not be granted expressly. What is relevant is that some prior legal grant of authority (such as a property right) allows a market actor to initiate some sort of conduct and the legal system, particularly competition law, will either sanction, ignore, or legitimate that conduct.

Third, the tripartite hierarchy of coordination rights that Sanjukta Paul has identified in United States competition law (favoring intra-firm coordination and vertical cross-firm coordination over explicit horizontal cross-firm coordination) calls forth specific patterns of price coordination. Most price coordination happens within hierarchical massive multinational corporations, with only the most marginal input from lower-level employees when it comes to fundamental business decisionmaking. The markets dominated by these firms tend to coordinate prices through price leadership, a form of inter-firm coordination that has been explicitly granted an exemption from antitrust scrutiny in part by presenting it as non-coordination. Many of these firms also control the pricing process of upstream and downstream firms through a variety of legal mechanisms that have also been exempted from antitrust enforcement. Attempts to resist the domination of these dominant firms are looked upon with a skeptical eye, and, if they do not fail due to private repression, are frequently quashed by the legal system.

En route to making these points, the chapter grounds the theory of market governance with the heterodox economics and sociological literature and reinterprets how market governance changed with the rise of large capitalist firms.

Tankus, Nathan and Herrine, Luke, Competition Law as Collective Bargaining Law (May 15, 2021). Labour in Competition Law, Cambridge University Press (forthcoming), Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3847377

World Maps for the Debt Paradigm: Risk Ranking the Poorer Nations in the 1970s

Author: Quinn Slobodian

This article offers a new account of the rise of the ranked nation-state through a genealogy of the category of country risk, which emerged in the 1970s as part of a response to the explosion of sovereign borrowing of petrodollars by Global South and Eastern bloc countries. Incorporating intangible qualities like political stability and the social fabric through a version of environmental scanning, country risk ratings quantified both the ability and the willingness of sovereigns to repay their debts. Adopted by the US Federal Reserve as a means of imposing the rule of law on global finance in the run-up to the Third World debt crisis, country risk returned in the research of the 1990s as a proxy for good governance, transforming the subjective impressions of managers and bankers into objective realities with policy effects.

Slobodian, Quinn, World Maps for the Debt Paradigm: Risk Ranking the Poorer Nations in the 1970s, Critical Historical Studies, Volume 8, Number 1 (Spring 2021) March 24, 2021). Available at: https://doi.org/10.1086/713524

Regional Monetary Standards and Medieval Bracteates

Author:Roger Svensson

In the Middle Ages, tens of thousands types of uni-faced bracteate coins were struck in the period 1140−1520. The existence of hundreds of small independent currency areas with their own mints in central, eastern, and northern Europe and the strong link between bracteates and periodic re-coinage explain the large number of bracteate types. The classification and dating of coins can provide insight into economic and monetary development when studying coin hoards and cumulative finds. A central problem when classifying bracteates is that most of them are anonymous, i.e., there are seldom any legends or letters. However, bracteates struck in closely located mints almost always have the same regional monetary standard. In this study, I show how monetary standards in combination with social attributes can be used to classify bracteates when both legends and find information are lacking. I also provide an economic explanation why closely related mints voluntary joined a specific monetary standard.

Svensson, Roger, Regional Monetary Standards and Medieval Bracteates (March 24, 2021). Polish Numismatic News, Vol. 64, pp. 123-56, 2020., Available at SSRN: https://ssrn.com/abstract=3811679

Cannabis Banking: What Marijuana Can Learn from Hemp

Author: Julie Andersen Hill

Marijuana-related businesses have banking problems. Many banks explain that because marijuana is illegal under federal law, they will not serve the industry. Even when marijuana-related businesses can open bank accounts, they still have trouble accepting credit cards and getting loans. Some hope to fix marijuana’s banking problems with changes to federal law. Proposals range from broad reforms removing marijuana from the list of controlled substances to narrower legislation prohibiting banking regulators from punishing banks that serve the marijuana industry. But would these proposals solve marijuana’s banking problems?

In 2018, Congress legalized another variant of the Cannabis plant species—hemp. Prior to legalization, hemp-related businesses, like marijuana-related businesses, struggled with banking. Some hoped legalization would solve hemp’s banking problems. It did not. By analyzing the hemp banking experience, this Article provides three insights. First, legalization does not necessarily lead to inexpensive, widespread banking services. Second, regulatory uncertainty hampers access to banking services. When banks were unsure what state and federal law required of hemp businesses and were unclear about bank regulators’ compliance expectations for hemp-related accounts, they were less likely to serve the hemp industry. Regulatory structures that allow banks to easily identify who can operate cannabis businesses and verify whether the business is compliant with the law are more conducive to banking. Finally, even with clear law and favorable regulatory structures, the emerging cannabis industry still presents credit, market, and other risks that make some banks hesitant to lend.

Hill, Julie Andersen, Cannabis Banking: What Marijuana Can Learn from Hemp (February 26, 2021). Boston University Law Review, 2021, U of Alabama Legal Studies Research Paper No. 3793939, Available at SSRN: https://ssrn.com/abstract=3793939 or http://dx.doi.org/10.2139/ssrn.3793939

A Proposition for the Redefinition of the Bank from a Historical Sociolegal Perspective

Author: Reda Mokhtar El Ftouh

Throughout history, banking has been key to the development of fundamental institutions and structures of capitalism, while also having been instrumental in its recurrent crises. However, this significance isn’t reflected in its definitions. In this brief note, I present a critical definition of banking institutions that takes into account their importance, as it approaches banking from a variety of perspectives. It conceives the bank as a mercantile-rentier that overlays social inefficiencies in monetary allocation through the transmission of internally-produced fungible rights in personam.

El Ftouh, Reda Mokhtar, A Proposition for the Redefinition of the Bank from a Historical Sociolegal Perspective (February 27, 2020). Available at SSRN: https://ssrn.com/abstract=3546177 or http://dx.doi.org/10.2139/ssrn.3546177

Banks, Marijuana, and Federalism

Author: Julie Andersen Hill

Although marijuana is illegal under federal law, twenty-three states have legalized some marijuana use. The state-legal marijuana industry is flourishing, but marijuana-related businesses report difficulty accessing banking services. Because financial institutions will not allow marijuana-related businesses to open accounts, the marijuana industry largely operates on a cash-only basis — a situation that attracts thieves and tax cheats.

This Article explores the root of the marijuana banking problem as well as possible solutions. It explains that although the United States’ dual banking system comprises of both federal- and state-chartered institutions, when it comes to marijuana banking, federal regulation is pervasive and controlling. Marijuana banking access cannot be solved by the states acting alone for two reasons. First, marijuana is illegal under federal law. Second, federal law enforcement and federal financial regulators have significant power to punish institutions that do not comply with federal law. Unless Congress acts to remove one or both of these barriers, most financial institutions will not provide services to the marijuana industry. But marijuana banking requires more than just congressional action. It requires that federal financial regulators set clear and achievable due diligence requirements for institutions with marijuana-business customers. As long as financial institutions risk federal punishment for any marijuana business customer’s misstep, institutions will not provide marijuana banking.

Hill, Julie Andersen, Banks, Marijuana, and Federalism (August 29, 2014). Case Western Reserve Law Review (Symposium Issue), Vol. 65, p. 597, 2015, U of Alabama Legal Studies Research Paper No. 2489089, Available at SSRN: https://ssrn.com/abstract=2489089 or http://dx.doi.org/10.2139/ssrn.2489089

Commodifying Marginalization

Author: Abbye Atkinson

Once pillars of American social provision, public pension funds now rely significantly on private investment to meet their chronically underfunded promises to America’s workers. Moreover, desperate for returns, pension funds are increasingly investing in marginalized debt, namely the array of high-interest-rate, subprime, risky debt—including small-dollar installment loans and other forms of subprime debt—that tends to concentrate in and among historically marginalized communities. Notwithstanding its often-catastrophic effects on communities, marginalized debt is a valuable investment because its characteristically high interest rates and myriad fees engender higher returns. In turn, higher returns ostensibly mean greater retirement security for ordinary workers who are themselves economically vulnerable in the current atmosphere of public welfare retrenchment. They must increasingly fend for themselves if they hope to retire at a decent age and with dignity, if at all.

This Article surfaces this debt-centered connection between two economically vulnerable groups: workers on the one hand and marginalized borrowers on the other. It argues that the current public-private welfare regime has thoroughly shifted retirement security into the hands of private financial markets, whose fiduciary duties and profit-sensitive incentives eschew broader moral considerations of the source of profits or the subsequent consequences of wealth extraction. Consequently, the rise of marginalized debt as a source of retiree wealth maximization shows how the tenuous socio-economic condition of one community is now openly a source of wealth accumulation for another vulnerable community. Moreover, this incursion of private entities into the arena of public welfare is pernicious because it commodifies and reinforces the subordinate socioeconomic conditions that make the persistence of marginalized debt predictable.

Atkinson, Abbye, Commodifying Marginalization (April 12, 2021). Duke Law Journal, Vol. 71, 2022, Available at SSRN: https://ssrn.com/abstract=3824467

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/