Money From Nothing

A major work of financial theory and practice with immediate relevance to the rebuilding of the economy, and restoring the promise of equality When the government decides to spend money, it simply creates the necessary funds for itself--as if out of thin air. That's how we pay for interstate highways, post offices, wars, social services, and economic stimulus packages. If it's that easy to make money . . . can't we all get more of it? Absolutely. And we should. So argue financial regulation expert Robert Hockett and bestselling philosopher Aaron James in this eye-opening, irreverent, and inspiring exploration of what the dollar really is. And better still, they show how we can build an economy that works for everybody without unwanted taxes and added regulations. In the process, we learn how disingenuous the political rhetoric surrounding inflation can be, how the demonized concept of the deficit is really just another way of tallying our collective national wealth, and how a strong central bank could free us from the abuses of private banking. With broad historical background and ambitious yet practical institutional proposals, Hockett and James offer a new vision of public finance--people's banking for a people's economy. Armed with this new outlook, we can even stop worrying debt and learn to love a strong, accountable, and transparent Federal Reserve as a cornerstone of our democracy.

"Breezy and entertaining, Money From Nothing brings history, philosophy and institutional common sense to show that our economic problems are not, for the most part, mysterious matters intrinsic to money, banking, deficits and public debt.  One only wishes that the real difficulties—energy, environment, financial fraud, racism, globalization and the coronavirus—were so easy to resolve.”
—James K. Galbraith, author of Inequality: What Everyone Needs to Know

“Climate Change and other global disasters do not care about your pet economic theory. They're coming. Ready or Not. Hockett and James reimagine how we should think about money, finally giving us the fiscal space to act decisively. If we do not listen to the call of this book, nature, not fiscal probity, will bat last.”—Mark Blyth, co-author of Angrynomics

"Grasping the meaning of money ain’t easy. Luckily, in Money From Nothing we have two amazing teachers, who laugh at themselves while seducing you into a deeper understanding of money as a social contract. Hockett and James are masters at their intellectual crafts, and damn fine wordsmiths. Read this book:  a tour de force of candy for the brain!"
—Paul McCulley, Retired Managing Director and Chief Economist, PIMCO; Senior Fellow, Cornell Law School; Adjunct Professor, Georgetown McDonough School of Business  

"[An] illuminating and accessible guide to how the Federal Reserve could act to improve the economy and the lives of everyday Americans . . . a lucid and persuasive call for financial reform."—Publishers Weekly 

"Timely . . . a heady proposal for a new social compact, with every point well worth debating . . . A wildly contrarian argument that contains many provocations—and some sensible solutions to big fiscal problems, too."—Kirkus Reviews

Auteur

Aaron James

Échantillon de lecture
“You’ve always had the power, my dear, you just had to learn it for yourself.”
—Glinda, the Good Witch of the North, The Wizard of Oz (1939)

You probably saw the movie version of The Wizard of Oz as a kid, as so many of us did. You might even recall the crucial line just quoted, which comes in the story’s culminating scene. Glinda, the Good Witch, is explaining to Dorothy what her long ordeal (being swept away by a great storm from her home in Kansas) could possibly mean.

The big lesson is: You’ve had the power to go back to Kansas all along—by tapping your shoes together. You merely didn’t realize it. So you had to learn it for yourself. But you can empower yourself, now, by understanding what you’re capable of. *

• That sounds like a message of female empowerment, and it may well have been. But today we often forget that the film, based on a children’s book by L. Frank Baum, is ultimately a parable about money. Baum was not only a one-time actor and the author of numerous tales about the land of Oz, an imagined American utopia, he was also a political activist who once owned a newspaper. The story we think we know so well was responding to the economic crises of his day.

This book is not a parable, but if it has a big thesis, it’s that we still haven’t taken Glinda’s (and Baum’s) lesson to heart, even a hundred years later. The lesson is: Although we Americans have suffered through financial crises, we’ve had the power to take control of our money all along. But we haven’t fully realized how it can help heal our society. Now the time has come to empower ourselves by understanding what we’re capable of.

Really? The Wizard of Oz—a neglected tract of political philosophy, the key to future prosperity and maybe to saving the republic? Yup. Just think back to that famous scene when Dorothy and Co., having followed the yellow brick road, finally arrive at the Emerald City. The great wizard is putting on an awesome spectacle. Suddenly, Toto the dog pulls back the curtain, revealing a coy, bumbling man conjuring with smoke and mirrors. We now use “pulling back the curtain” as a cliché for unveiling or unmasking. We’ve largely forgotten what the original parable was pulling back the curtain on.

When Baum’s book was published in 1900, it was meant to expose the “gold standard” as an illusion. There was no “yellow brick road,” paved in golden rocks, to a green Emerald City of shared prosperity. That was always mythology, so much propaganda.

Just recall the main characters. Who was the bumbling “Wizard of Oz” behind the curtain (“oz.” meaning “ounce,” which is of course the unit of measure for precious metals)? Government officials of the day.

Who were the Wicked Witches of the East and West? The bankers of the East and West Coast cities, who propagated the gold myth for private profit—profit that came at the expense of the great hinterland.

And the Cowardly Lion? The political class and intellectuals that let the bankers have their way.

What about the Tin Man without a heart? The industrial workers in the cities, who never aligned with the farmers.

Who, then, was Dorothy? A daughter of the Midwestern farm families, who suffered under a recession and wave of home foreclosures in the 1890s. The recession was the great cyclone that swept Dorothy from her home in Kansas.

If this isn’t obvious, consider the crises of Baum’s day, the ones he lived through. By 1900, the American economy had been starved of money decade after decade. That was the whole point of the “gold standard,” after all—to limit the supply of money to the scarce supply of certain specific yellow rocks dug up from the ground. So when the gold diggers out west or in Australia or South Africa had a bad year, well, there just wasn’t going to be enough money for a growing economy. That brought what economists call “deflation,” or “too little money chasing too many goods,” and thus economic contraction in the Midwest. Farmers outside of the big cities, in Kansas for example, were hit hardest.

The early American colonies were short on precious metals, so they used book credit, paper called “scrip,” and even tobacco or she…