The Coin Abides

Matt Yglesias has posted a sharp post-mortem on the platinum coin debate.  This weekend, the White House imperiously declared that debate over.  And perhaps it is – for now.  But Yglesias remarks on the salubrious effects of the debate:

All that said, I’m glad we had this conversation. Direct discussion of the platinum coin was a good reminder that many people, including influential media figures, appear to have no idea what money is or how the monetary system works. Apart from the shockingly widespread view that the value of coins is determined by their metallic content, there was a lot of insistence that creating money was somehow an act of “magic.” In fact, the way all legal currency is created is that a government agency creates the money.

I would go a bit further.  The coin debate triggered something.  The platinum coin is a big shiny, reminder that in some way, somehow, the monetary authority of the United States rests with the American people, even if the plutocratic architects of our financial system and the owners of our country have succeeded over time in burying that authority under many layers of convoluted technocracy and confusing delegations.

The current system of public finance that we have evolved in the US treats the US Treasury operationally as though it were just another commercial enterprise that depends for its financing on the Federal Reserve, that Bank of All Banks that rules us all, and at which even the US government itself must stand behind the rope line as a mere depositor.  Since the financial power of the US government and the financial power of the Treasury are often taken to be one and the same thing, then a consequence of this deeply-ingrained perception is that the government is seen as monetarily subordinate to a mysterious, external financial power.  Given that subordinate status, in must either acquire dollar assets by taxation, or compete for borrowed dollar assets in the credit markets with other borrowers.

But this is absurd.  The Fed is itself a branch of the US government, established by congressional legislation to act as the agent of Congress’s inherent monetary power – despite the Fed’s pretentious “independent within the government” self-description.   The Treasury is thus not equivalent to the total financial power of the United States government, but is only one account at the Bank of All Banks, and that bank is itself wholly the creature of the American people and their government.  The Fed account is one US government account, and the Treasury account is another.  And we can change the structure and hierarchy of accounts whenever we want to by reforming the very acts of legislation that created the current system in the first place.

We have it within our power to make sure the Treasury account is fully funded to accomplish whatever we might want to do with it, subject only to limitations on the real assets of the Unites States and the energies and capacities of its people.  Currency assets can be created at will, and allocated to whatever tasks we select for them.  It is entirely a matter of public policy choice whether we pay people interest in exchange for temporarily transferring dollar balances from their own accounts to the Treasury account.  If we don’t want to pay the interest, we can either tax away those balances, or create new balances directly in exactly the same way the Fed creates them every day in the exercise of monetary policy.  People now see that if you can create a balance in the Treasury by minting a coin and depositing it, you can also create a balance in the Treasury without the interposition of any barbaric and anachronistic metallurgy.

A strong form of central bank independence has been the foundation of neoliberal financial rule for the past three decades, and during that period the capacity of democratic governments to guide the economic destinies of their nations has been weakened, and surrendered to private wealth and private corporations.   But the glaciers of central bank independence, seemingly so frozen in place and imperceptible in their movements, are beginning to crack and groan.  Central bankers and the financial community have already begun to wring their hands publicly about the impending loss of independence, autonomy and power.  And increasing numbers of Americans are beginning to understand the nature of their own monetary system, and the reality of their latent and untapped economic power.

Washington will revert back to normal for now.  After resolving the standoff over the debt ceiling, both parties will return to their misguided pursuit of austerity and slashed deficits, their defense of the privileges of wealth and ownership, and their neglect of the unemployed and the struggling.  But the chain reaction of liberating ideas that hve been unleashed by the coin debate will continue.

So the coin abides.  I don’t know about you, but I take comfort from that.

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