Money as a Democratic Medium | Monetary Sovereignty, Democracy, and Economic Development


ROY KREITNER: So our three
panelists this morning have a lot to say,
and I have some things to say in commentary on them. And so in the
interest of time, I’m not going to spend
any time doing what you can do on Google. So I’m not going to actually
introduce them, except to say that the speakers will
be in backwards order. Katharina Pistor from
Columbia Law School, Jamee Moudud from Sarah
Lawrence, and Anush Kapadia. And so Anush will
start, and then, Jamee, we’re going to sit
over on the side while you use the presentations. And then I’ll
comment a little bit. And we should have– as long as everyone
sticks to time– we should have time
for you to participate as well in the discussion. ANUSH KAPADIA: Are you
going to show us time? ROY KREITNER: I can show
you time, if you like. JAMEE MOUDUD: That’ll be good. ANUSH KAPADIA: That’ll be good. JAMEE MOUDUD: Thank you. ROY KREITNER: So
each speaker will speak for about 15 minutes. Anush, please. ANUSH KAPADIA: So good morning. My name is Anush Kapadia. I work in– I’m the guy from Bombay– [LAUGHTER] –who Chris mentioned. First of all, I think
we should just– since I’m starting off here– maybe we should just give Chris
a big round of applause for– [APPLAUSE] –putting this all together. And it’s an amazing
conference, and I’ll do my best to get out
of the way quickly so we can get onto the good stuff. But this paper is part
of a broader project that I’m calling the– sorry, I
can’t see the presentation over here and there at the same time. Now, I put something off. OK. I won’t go there then. It’s part of a broader project
that I’m calling “A Political Theory of Money,” that
I’m trying to distinguish from the state theory of money. And this part of it is– the chapter that I
gave Roy and the panel is a kind of
humanistic exercise, a close reading of Geoffrey
Ingham’s The Nature of Money. And trying to situate
myself vis-a-vis Ingham’s very historically
and theoretically rich reading of The Nature of Money. And I won’t for
reasons of time get into that exegetical
exercise, but it is animated by this question. Why does the state
have the best money? And I’m trying to situate
myself between these two schools of thought, which are– I’m using chartalists for– you can think of MMT, you
can think of neochartalism– I’m just using chartalism as
a kind of Randy Wray, Geoffrey Ingham, that school of thought. And their answer
to the question, why does the state
have the best money, is pretty straightforward. The state is a sovereign. And the sovereign has
the power of fiat. The sovereign has
sovereign power. And state debt,
the IOUs, they’ve moved on from
classical chartalism. They no longer
think it’s a token. They agree that money
is a form of debt. But it’s sort of
like credit by fiat, because there’s never really any
question that the state’s debt will be accepted,
because taxes drive money, liabilities
on all of us generate the demand for the state’s IOU. And so there’s never really
a problem of acceptabilities and that’s why the state
has the best money. The banking school has as a
more commercial bend to it. And they are of
the view that there is a commercial
calculation involved. That the state’s debt is
calculated as being risk-free. And it’s not so much fiat,
but a kind of commercial deal that renders the state’s
money as the best money. And that’s because the
state is a special bank. It’s uniquely able to
do the banking business. It’s not so special though. There are other people who
can do this banking business. And certainly, not all
states are on the same plane. Some states can do the banking
business better than others. But there’s a commercial
logic embedded in there. And I want to take issue
a little bit with both these schools, and say
that on the one hand, yes, the chartalists are right. Of course, the state
is a sovereign, but I’m not convinced that
they have an adequate account of what sovereignty is. And they reduce
sovereignty in a sense to a monopoly on coercion,
a monopoly on authority. And it’s a thin
reading of sovereignty. And I’ll go into
what one can have– a slightly more richer
reading of sovereignty– and that gives us I
think something– gets us to a different reason as to why
the state has the best money. In particular, they
are big fans of Minsky, but they don’t really deal with
Minsky’s survival constraint. And I want to say that the
survival constraint, namely the requirement
for liquid funds, binds the state in a sense. It doesn’t bind it the same
way that it binds you and me, but it does bind it. And they don’t really
have a good account of how the state gets out
of the survival constraint. So that’s my issue
with the chartalists, and the paper really
focuses mainly on them. In another paper, I’ve dealt
with the banking school question, is that what
is it exactly that makes the state a special bank? What is their
account of hierarchy? What generates hierarchy
in financial systems? And it strikes me that
they’re right, of course, in outlining that financial
systems are hierarchical, but what exactly drives
hierarchy in financial systems is slightly
under-theorized there. And so I would make the claim
that putting these two things together a little bit that
democratic sovereignty, indeed redefining sovereignty
as democratic sovereignty– namely, legitimation
of rule by the ruled– this is what essentially
drives and makes the state a special kind of bank
with the best kind of money. That’s the claim
that I’m going to try and run through very quickly
in the time that I have. And forgive me for
being telegraphic, but– as I say, in the
interest of time– but this is the kind of
syllogism of how it runs. So what is democratic
sovereignty? Basically, it’s
not to be confused with procedural democracy. Today, which is to say since
the 16th, 17th century, the dominant notion
of sovereignty is democratic sovereignty. No, rule doesn’t
happen in the name of the divine right of kings
or something like that. It’s basically
legitimated by the people. This is true for a very
broad set of regimes. Iran is the Islamic Republic,
for better or worse. China is the People’s
Republic, and so on, and so on. So even if it’s a
sort of eyewash, no one claims
sovereignty in the name of anything other
than the demos anymore and that’s important, because
that is a very key legitimating function of the state. And it enables the state–
a democratic state– to do more things
generally and with money than it would otherwise. So that’s as far as democratic
sovereignty is concerned. And that is already a shift
in the notion of sovereignty that is dominant in the
chartalist literature. The survival constraint is this
idea from Minsky– basically, I see it as his reading
of Marx’s double freedom, that capitalism is a cash nexus. And if you don’t have
cash– liquid cash, acceptable means of payment– then you’re going to struggle. We all need that to live
and we have to beg, borrow, steal to get it. In particular, borrow–
pledge something. Pledge an IOU that
may or may not be acceptable on
differential terms in order to access
liquid funds to live under capitalist construction. And this binds
the state as well. The state is not
able nearly to tax– to spend money into
circulation, because acceptance is not guaranteed ipso facto. It’s based in
democratic sovereignty. And that comes to
the simple idea that taxes are not simply
cancellation of money, but taxation is exchanged
for representation. This liquidity that
the state’s IOU has doesn’t come from pure coercion. It comes because it’s embedded. Money is accepted in a sense–
the state’s money is accepted– because the state is
legitimate in some way. It’s not pure coercion. It’s coercion plus consent. It’s coercion embedded
in legitimacy. It’s coercion based in
a political settlement that we can call
democratic sovereignty. So the baseline of
liquidity, the ability for taxes to drive money
is further embedded in a political structure. And it’s that
political structure, it’s that political
embedding, quite centrally, that we can see as
democratic sovereignty, that the chartalists
are giving short shrift. So what does democratic
sovereignty do? DS is Democratic Sovereignty. It basically ensures a
kind of commercial logic. It generates a kind
of commercial logic. It says, because of
democratic sovereignty people are happy to pledge
their cash, their future income, to the state in form
of future taxes. And that future cash flow
discounted back to the present is value. That’s how you value an asset. A future stream of income is
discounted back to the present. Democratic sovereignty
generates the best assets. So a political logic
generates economic value. So it’s not commercial logic
element of the banking school, but understood through a
political logic, namely democratic sovereignty. So democratic sovereignty
gives the state the best assets and that’s why
the state’s IOUs are the best IOUs. The state can leverage up,
because its asset base is us. We all pay into the
state in a sense. In Perry Mehrling’s
phrase, the state is a kind of social mutual fund. And that’s why it can
do the banking business better than anyone else can. The state revenue–
in OECD countries, state revenue is of the order– even in the US– of 30% of GDP. No other economic
entity is as large, is measured in terms of
percentage of the GDP as large. The state is an economic
Leviathan precisely because it’s a
political Leviathan. So that enables
democratic sovereignty to bend the survival constraint. It can’t break it. It still is subject to it. There is a requirement
for liquid funds. But it can bend it. This is what monetary
sovereignty is. It’s not the issuance by fiat. It’s the bending of the
economic logic of liquidity. It can bend it the furthest–
farther than any other entity can bend it– because it’s this behemoth. It can bend that constraint
further by grounding money, if you like, in value. Now, this gets us to
theories of value. If you’re a classical
Marxist, or indeed believe in the classical
dichotomy in any way, there’s this past
orientation of value. This is, obviously, predicating
value in the future. Some would call that fictitious. But that’s a story
for another day. This is, obviously, the most
controversial point as it were. So I chose to focus on it
in terms of the chartalists. In what way can we seriously
say that the state is bound? This is the state. It has all the guns. In what way is the state bound
by the survival constraint? And chartalists
would say it isn’t. It really isn’t. And this is why notwithstanding
the doffing their hat or more to Minsky,
the chartalists are really smuggling in a fiat
logic into a creditory logic. Because credit is
a two-sided– so they’re like creditors,
what creditors? Bond vigilantes? No, not really. That’s just ideology. Ingham says this. Randy Wray says this. The bond vigilante idea– the idea that if
you spend too much, but the bond market will
drop your paper and run, and you will thereby be
constrained in your spending as a state– that idea is not an
institutional constraint for these people. It is merely an
ideological constraint, because that’s the rules of
the game under capitalism. And so we just have to get right
thinking on this and then, hey, presto, we’ll be able to just
spend money into existence. So this is credit by
fiat, if you like. This is smuggling
in a fiat logic into this dyadic fraught
relationship that is credit. So you smuggled– you’ve
wished away ex hypothesi all the complicated,
interesting political economy features of credit just with
a wave of your hand, which is why I’m saying it’s a
thin theory of politics that undergirds the chartalist idea. So credit is not fiat. Credit is a bargain. There’s two sides to credit. One of Minsky’s favorite
aphorisms, of course, is that anyone can issue money. The problem is to
get it accepted. And the problem of
acceptance, the very center of Minsky’s concept of credit,
is wished away entirely, because acceptance is just
ruled as not an issue a priori in this line of thinking. There’s also a
time inconsistency problem with the state. The state– it’s a kind of
consumption smoothing story, where the state has
to spend all the time, especially in wartime as we saw. The state needs money
now, but taxation happens over a period of time. It’s lumpy. So you need a smoothing
function to get you out. So the state is always
in a position to borrow. In a sense, the state is always
highly solvent for reasons that we saw. It has the best assets,
but it’s always illiquid. And getting the state’s
IOU accepted, as I say, is predicated in a
political settlement, and it is a deeply
political fact. So you get this politics
between a balance of power, if you like, between surplus
agents and deficit agents. And the irony here is that this
is exactly Ingham’s account of the rise of capitalism. And he says it’s a
wholly contingent story. It didn’t have to
happen this way, so there’s no teleology here. But capitalism in
early modern Britain, happened by way of precisely
such a balance of power, where you had a resurgent
bourgeoisie holding up the sovereign who wanted to
spend because of war, and out of which came parliament–
a shared sovereignty. King in parliament–
sovereignty– the very nub of the chartalist
argument was hybridized. It became shared. But this Ingham sees
as just capitalism. Capitalist money
is parochialized. And that confuses me. Why is capitalist
money parochialized? He says, this doesn’t
have to happen this way, it just happened to
happen under capitalism. But surely capitalist money
is the best money we have. Capitalism isn’t a
historical outlier. Capitalism is the
Weberian ideal type. And if capitalist money is
the Weberian ideal type, then surely the nature of
sovereignty undergirding capitalism is
equally ideotypical. Namely, hybridized sovereignty,
shared sovereignty. And that’s all that
democratic sovereignty is. It’s just shared broader. It’s just shared over a
little more shoulders. So that’s the
rudiments, if you like, of something like a
political theory of money, which might be distinguished
from a state theory of money. A sovereign people tied to a
share of their future product to the state. The people are sovereign,
not the government. Randy Wray says, sovereignty
lies with the state. That’s merely a confusion. The people are sovereign. And this is a confusion
between the sovereign and the government. The government is the
agent of the people. And Richard Tuck is a denizen
of these parts– talks about a sleeping sovereign. The people may wake up only
once every once in a while, but sovereignty ownership of
the state resides with them and they can choose
a form of government. Obviously, this idea
goes back to Rousseau. Which is monarchical, but
it’s no less democratic, because ultimately the
sovereignty is with people. So the people are sovereign,
not the government. And the state is
solvent precisely because the people
are sovereign. The state is solvent because
the people are sovereign. A non-democratic state
without the catchment area of all its taxpayers paying
in, is simply not as solvent, and is therefore
not a sovereign. So sovereign people make
a state a special bank, which then produces
the best money. Here’s some distinctions
between this way of thinking and the state theory. And I’ll end there. [APPLAUSE] ROY KREITNER: Thank you, Anush. And thank you for keeping to
time, because I know it’s hard. Jamee, please. JAMEE MOUDUD: Thank you. Thank you so much for coming. Thank you so much, Chris,
for this great event. Thank you all. And also, a special shout-out
to my long-suffering students who showed up, some
of them at 1:00 AM last night, to
attend this conference. So I’m just going
to get into it. This is a big project,
and it’s about the story of industrialization and
the mobilization of money. And what I’m going to
do in the 15 minutes I have is focus on one
particular dimension to this story, which is the
relationship between the state and the Bank of France,
the central bank. And I’m going to be focusing
on from the early 19th century to the end of the Fourth
Republic, which is about 1958. Now, much of the literature
on state-led industrialization focuses on the success stories,
such as Japan, South Korea, and China, by studying its
industrialization history from the early 19th century. I chose to study state-led
industrialization in France, because its degree of
success was middling. And at the end of the talk,
I’ll come to why I chose that. As in Japan and elsewhere,
France in the post-war period pursued a model of what is
called indicative planning– so not central planning,
but indicative planning– in which the state played an
extensive role in promoting export-led industrialization. I argue that the
challenges and achievements of the post-war period to
promote large scale farms can only be understood
in the context of its previous
monetary history. I focus on the politics of
money, in general, and credit, in particular, because there
is an established literature– and I’m specifically
thinking here about Alexander
Gerschenkron, and, of course, Joseph Schumpeter– that has stressed the role that
an elastic supply of credit is absolutely central for
progressively greater outlays of fixed capital. So following
contemporary authors such as Chris Desan, and
Omarova, and Hockett, and Ricks and
others, my framework assumes that money is
fundamentally a public good. Since capital accumulation is
by definition the accumulation of money, and politics
acting through the law is central to
business investment– this is the general
consensus in this literature on state-led industrialization–
it necessarily follows that the
politics of money is also central to the
story of industrialization– definitionally true. That is, in order to
understand a particular type of industrial experience,
we need to ask how is money created
and how does it flow to give rise to markets? What are the political and
legal foundations of markets? It must be said at the outset
that before World War II, French industrialization
was not overall an exemplary success story. Since even as late as the 1930s,
British, German and American firms dominated global markets. With the exception of
success in certain sectors, overall French industry was
reliant on retained earnings– and this is a really
important point– was relying on retained
earnings instead of bank credit for investment finance. That necessarily
restrained their ability to benefit from exploiting
economies of scale and scope. So in this talk,
I will primarily focus on the Bank
of France, which was, of course, at the
heart of the banking system. What I discuss is an interesting
cooperatively conflictual relationship between the
BOF and the Treasury. And that it is this dynamic, put
in the context of the broader industrialization strategy–
which I shall not tell you about right now, because I will
not have the time for that, but that’s in the paper– and that it’s that relationship
which structured credit flows and thus the nature of
the industrialisation experience itself. So here are the key aspects
of this relationship. The BOF was always a
banker of the state. It was a consortium
of private investors. But its institutional
relationship to the state was captured by the following
significant declaration of Bonaparte before the
Council of the State in 1806. Quote, “The bank does not only
belong to its shareholders. It also belongs to the state,
because the latter gives it the privilege to create money. I want the bank
to be sufficiently in the hands of the
government, but not too much.” Now, that I put in quotes,
because that I would argue is really where the story of
that conflictual relationship begins. It was the monopoly
emitter of notes. So the laissez-faire
philosophy, which was the ideological
outcome of the revolution, was taken by proponents of
free banking, who were also supporters for an
expansion of credit to fuel business investment. So the laissez-faire
philosophy for some authors was the logic of
that was that there should be free banking and
multiple emitters of currency. Their argument was that
free market competition would weed out banks
with lower quality notes, just like competition
in regular markets. And this was opposed by others,
especially the Bank of France and its patrons
in the state, who objected by saying that multiple
banknote emission would produce an excessive supply
of fiduciary money, and that would generate
inflation and undermine the public’s faith
in the currency. And I’m not going
to get into here whether there was any
substance to that argument, but that’s the
argument that was made, and that was actually a
kind of a general consensus. So here’s what happened. The BOF’s hegemony
was reinforced by being granted
the legal privilege of being the monopoly emitter
of currency, of banknotes, after 1848. Before that it was
restricted to Paris. But this was not a permanent
privilege, since it was subject to periodic renewal. And this renewal was then
like the proverbial sword of Damocles that
hung over the BOF, reinforcing the political
power of the state. So the government had already
determined the precious metal content of coin. And then by conferring legal
status to the BOF’s banknotes, the value of the
franc was determined, because the government spent and
taxed in that currency, which is a familiar story
to those of you who have studied this kind
of stuff in other contexts. At least until the
mid-19th century, the state with active
support of the Bank of France was quite successful in
maintaining tight control over the banking sector, and
thus the supply of credit. There were restrictions on the
granting of limited liability, so Société anonyme, which
restrained the growth of banks, and therefore, non-banks,
because the supply of credit was somehow restricted. And it was only really in the
very important legislations in the 1860s that in the
wake of these legislations that there was liberalization
of the limited liability notion, and there was heightened supply
of credit and concentration in the banking sector. Now, significantly, all sides,
including those who supported an extended credit supply– they were supportive
of a convertibility between banknotes
and precious metals. So Article V of the Statutes
of February 13, 1800, specified the need
for prudence in terms of the relationship between
the maturities of the BOF’s banknotes and its stock
of precious metals. Now, this last point
is what I think is the basis of what I call
a governance conundrum. Clearly, the BOF,
private investors, they had to be kept
satisfied, and this meant allowing them to pursue
their monetarist inclinations. This meant that there had
to be some sort of control over the supply of credit. And yet, industrialization
and infrastructure creation– for example, railroads,
in which the French state embarked on a massive
scale in the 1830s, 1840s– that required an expansive
supply of credit. So credit supply
needed to expand, and yet it needed to
be kept within bounds. And you can see the
issue right there. So what we then observe is
that this conundrum culminated in a kind of an uneasy
compromise that I think is well-captured by this
following observation by the historian Jean Bouvier– and maybe some of my
French-speaking colleagues over here can make sure that
I translated this right– who said that, “The
fiduciary emission flow, being more stable, accompanies
the growth of the metal stock, but always stays above
it at variable distances. The metallic guarantee
of paper currency, a relationship which was
supported at the time period, does not imply a full coverage
of the latter by the former. However, the growth
of metal reserves supported the growth
of bank notes, at the same time as
the latter, related to the rise in
market transactions, which engendered the
growth of metal reserves.” So what he was implicitly
pointing to here– so if you look at the
chart on the left– that shows from 1806 to 1913–
it shows bank notes, and it shows metal reserves. The right-hand side
is the natural log. So the slope of a
natural log gives you the percent of change. What he was
implicitly pointing to was what we call a
co-integrated relationship. And so I’m not going
to give you a lecture on econometrics over here. But the basic point here
with regard to variables that you see a co-trend
is, is that co-trend a spurious correlation
or is there some story linking the two? It’s just like two cars that
you observe on the highway. They drift apart. They come back together. Is this purely coincidental,
or is one adjusting its speed to the other, or are they
both adjusting to each other so that you get a rough
co-movement over time? So what we find
then, theoretically speaking behind the story,
is industrialization is proceeding. Industrialization is generating
an expansion of bank notes. That bank notes themselves
are driving the accumulation of metal reserves. But at the same time,
the central bank is pursuing a less than
full accommodating position with regard to bank notes. So it’s also pulling
at bank notes. So you get this rough
co-movement over time. It’s actually not so much a– it’s a pretty close movement. This implies that there had to
have been a continuous inflow of precious metals– gold and silver,
but primarily gold– into the country via
the balance of payments. So the politics of
international capital flows becomes a really crucial
part of the story. The other part to the conundrum
was that the Bank of France was not at a liberty to raise
interest rates as it wanted to in order to attract capital,
because the state required interest rates to
be low and stable. So somehow, this stuff
was coming in in order to fuel industrialization. And I suggest– I don’t get into
that in this paper, but that’s another
future paper– is that the question of mining
and gold flows and silver flows from the periphery, from
the colonies, which I think would be familiar
to many of you, was a crucial part of the story
of industrialization in Europe. Of course, Marx
talks about this. Others have talked about this. I don’t get into
that here, but that’s an interesting implication area. Flash forward to the
late 19th century. 1897 extended the note
issuing privilege, but also deepened the bank’s
obligations to the treasury. But the bank was not
a passive absorber of governmental diktats. Not surprisingly, given
that the government had to incentivize it for
it to be even in business. But the conflictually
cooperative relationship began to move more in
the direction of conflict as we proceeded into
the 19th century and certainly into
the 20th century. And that conflict
became much more acute in the interwar period. By the 1930s, many forces
on the left– actually, that started earlier– were demanding the need
for economic planning, or dirigisme, and the
democratization of credit. Opposition to the
BOF’s political power increased quite dramatically. There was growing recognition,
especially in the 1930s, that the political
power of the bank was suffocating attempts
by the government to implement radically
new policies that required greater
political control over the flow of credit. In short, newer
political measures were needed to overcome
the power exercised by the bank and other banks. So in the Great Depression,
some important organizational changes to the bank
were brought up, including those that reduced
its operational autonomy quite significantly. But– and this is
an important point– it was not nationalized. This is really important. Even by the popular
front, the left coalition that was elected in 1936– Leon Blum administration. But taken together what we
observe is that in this period from the end of the– well, beginning
of the First World War into the Great Depression,
and certainly after the war– into the Second World War– there were a series
of political changes that eventually defanged
the central bank. And so you see on the left
the story fall apart– the co-integrating
relationship fell apart. And interestingly,
when the whole model changed after the
Second World War, with the nationalization of
the Bank of France, and a very export-led industrialization,
very technocratic productivist way of organizing
industry, again, we see– at least into
the Fourth Republic– again, that co-integrating
relationship appear. So what we see then in
terms of Duncan Kennedy’s classic article on Hale,
that over time what we see is a gradual destabilization
of the background laws underpinning the central bank. And that eventually led to
its full nationalization and the creation of a new
kind of development model after the Second World War. Conclusion– so a persistent
theme in this paper is that money was always
treated as a public good, as much so after the Second
World War as way back. Dirigismes– so
economic planning– intermingled with laissez-faire
all the way through. Whereas, the
conventional view often is that dirigisme is
only after the war and it was laissez-faire
fair before. I would argue that it
was always intermingled. Much of the debate on
the state and development tends to be painted in
very black and white terms. That state-led industrialization
was a shining success– this is the usual claim
by heterodox economists– or that it was a failure– that’s the neoclassical view. I chose France because its
industrialization experience presents itself as a
particular shade of gray. As an institutionally
grounded heterodox economist– so I’m coming out of
the closet over here– I’m an economist– I conclude that bringing
back the old notion of money as blood, one that
needs to be produced in political
communities, can teach us a lot about the shades
of gray that one observes in industrialization
experiences. That’s it, guys. [APPLAUSE] KATHARINA PISTOR: Well,
thank you very much. Good morning, everyone. And first of all,
thank you Christine and all the
organizers for putting this great event together. And thank you for
having me here. As you saw, if you see
the title of my talk, it’s called “Capital
Rules by Law.” So the unit of my
analysis for this talk and for the book
project from which this chapter has been drawn
is capital rather than money. And I will make the
connection in a second. Let me just say in broad
terms where I want to go. So I think I want to complicate
the stories that you’ve just heard, including Christine’s
presentation upfront, by bringing two things in. One is private
institutions of law. Anush has spoken about
contracts and credit, but I want to go
a little further and talk about other
institutions of private law that have been critical in
coding capital, including debt or credit as one of
the core capital assets that we have. And the other complications
that I want to throw in is globalization. And so I think my basic claim
is that, especially in times of globalization, the idea that
we could design money top-down or try to get a control over
the money supply, especially the private money
supply, is problematic, unfortunately so for our
democratic ambitions. But I think we
have to realize how the machine works to know what
we can do and what we cannot do. So let me just start
by saying that yes, I think money is a
sovereign project, and I do buy certainly
normatively in Anush’s project that it has to be a
democratic project. The state, however, is
also behind private money, but in a peculiar
way, and I just want to talk a little
bit about that. So the state is not directly
producing private money and it’s not only giving
franchises to banks to produce that money,
but the private sector is producing certain
claims and availing itself of certain institutions
of the law to do so. So very simply
put, I’m basically arguing in my book, which is
called The Code of Capital, is that capital is coded in law. It has always been coded in law. And what the institutions that
we have used for centuries to code capital are contract
law– that’s the easiest– but it’s property law,
collateral law, trust– the common law
trust is critical– corporate law, and
bankruptcy law. And these institutions
are malleable, and they are changed, and
adapted, and transposed, and grafted onto
different assets, mostly by lawyers on behalf
of certain types of clients. It’s a highly
decentralized project that avails itself
indirectly of state power, but not necessarily directly. You don’t need ex ante
approval to do so. All you need is a state, or an
agent of the state, a court, to vindicate the coding
process ex post facto. And you don’t even
need that all the time. Because if it’s assumed
that this is legal and if you do it in a way
that is similar to ways in which other assets had
already been coded in capital and had been sanctioned
by a court of law, then you don’t necessarily
face a challenge in court, and so you just can do it. And so I think what lawyers
have done over the centuries, they have basically pushed the
limits of how far you can go and how much the courts
are willing to vindicate, and to create new
types of assets, and use the same
institutions time and again. So what do these
institutions do? Why do I choose property,
and trust, and corporate law, and bankruptcy? You can add more. I’m just saying these are
the core institutions. What they really do– and that’s why we also need
the backing of the state– is that they graft certain
attributes on simple assets. So take a simple asset–
a piece of land– or take even a simple
asset– a claim that I have against any one of you– how can I flip
this into something that is wealth-producing–
so capital as a private
wealth-producing asset. Well, I give it priority
rights over competing claims. So my claim is stronger
than anybody else’s claim against you. So if I can negotiate
this in some way so I can get backing for that–
ideally, I use collateral. So that’s the next item. If I have a collateral,
a secured interest, I can enforce better
than anybody else. If I have a property right, I
can own and seize this asset. I can seize it even
in a context where a debtor might be bankrupt. If I own the asset, I can
get it out of the pool. So I’m saying bankruptcy
is a wonderful asset test to see what assets really
have value against others, because in bankruptcy,
of course, by definition, you don’t have enough
assets to satisfy everybody. So it can look at
who gets priority. Who has ownership gets priority. Who has secured assets
gets priority over others. Then, of course, the
good old common trust. And that’s, I think, one
of the greatest advantages, if you want to put it in those
ways, of the common law system. It’s basically a
contractual device to alter property rights. For no one else to see
really necessarily only what you pull out the deed of trust
in times of conflict and say, oh, I’m no longer the owner,
so you can’t really tax me or my creditors
can’t come after me because I have
already transferred formal title to the trustee. The trustee’s only the
formal title holder. Its creditors can’t
go after the asset, because he doesn’t have
the economic benefits. And the beneficiary
doesn’t really have the benefit quite yet,
so it’s difficult to tax or enforce against
his assets as well. Now, that has changed over
time, but that’s the beauty of the trust, which
is why it has been this fantastic instrument
to shield wealth from different private
creditors and from the states to the state. So trust is the major
tax avoidance scheme, I think, even to this day. So private money,
private credit, is coded in similar ways. I use collateral. I use enforcement through
contracts and other devices to create that private
money, but it doesn’t really have the state as an active
participant in the production process. It has it as a passive
bystander and relies on the willingness and the
hope that the bet, if you wish, that these contracts can be
enforced in the court of law, if and when challenged. But even if challenged
later on, you get some mileage out
of having done this and getting a
comparative advantage of being ahead of everybody
else in making money in the meantime. And only rarely will
this be taken back, even if later on a device
might be deemed to be illegal. So I said one thing
that you need to do is you need to code the
attribute of priority onto an asset to
flip it into capital. There are three other
attributes that I would add. Another one is durability. That’s less
important in finance. It’s really important in
land and other assets. So one way to create
durability is to protect an asset from bankruptcy. And English law has done
this for estate holders, basically until the very
end of the 19th century through something that’s
very similar to trust. You could basically throw– you would entail
the family estate and the life tenant only had
certain rights to the land, but couldn’t alter it. And a creditor
could seize– even if you had a mortgage–
he could seize only half of the land and never
the family mansion. That’s how you basically keep
the family wealth protected against creditors. And that was in
England, throughout the industrialization until the
very end of the 19th century. So durability is
important for some assets. For financial assets, another
attribute is really critical and that’s convertibility. Convertibility is not only
that I can assign or transfer my interest, but
convertibility means I can flip it into state money. I have an option to flip my
private claims, which might not have much value anymore, and I
can flip it into state money. The beauty of that– as I saw Morgan already here– the beauty of that is to
say that the state protects the nominal value of my assets. So I can lock in the value
that I have made in the past by flipping it into state money. If I have an option to do
this at any point in time, I have a comparative
advantage over others. If I have the power or I
have created a put option that a state is
reluctant to deny, then I can do this in the
midst of the crisis as well. And then finally, we need
universal enforceability. That’s where the
state really comes in. So if in doubt and I really
need to have enforcement, then I can make a claim
against others who have never been part of the game. So it’s not only contract– contracts, I’m by myself,
vis-a-vis with persons I’ve really contracted with– but with property rights,
and trust, and corporate law, and bankruptcy law,
I basically create claims that will be enforced
through coercive powers, if necessary, against third
parties who have never been part of the game. That’s the beauty of these
types of legal devices, and that gives them
the kind of power. Because they are in
private hands largely, and sophisticated lawyers
have honed their skills over centuries in
how to use them, there is a parallel process
through the top-down process that is going on. And that’s quite powerful in
creating these kind of assets through all these various
devices that I had mentioned. So that’s the private
law part of the story that I think you can tell it
as a purely domestic story. You can even complicate
it by saying, if you have regulatory
competition as you’ve had in the United States,
because it’s a federal system, and most of the
laws I’m describing are actually in the hands of
the states in this country. So it can push the
limits by basically transferring your transaction
into another state’s law. You just opt into
another state’s law. And since this has
been sanctioned as part of interstate commerce
protected by the Constitution, you can actually play
one legal system off against each others
at that level. So that’s quite powerful. Now, add to that globalization. So what we’ve been able to do
through regulatory competition within the United
States for centuries now has become possible
at the global level. Because many states– and
so at the global level, again, I think most of the
action is in private law, so it’s a national law. But the beauty is that you can
opt into certain national laws. So the global system, I would– as a hypothetical, you could
say the global financial system could be coded in a single
domestic legal system, as long as all other states
respect and enforce the legal rights that
are being created under that legal system. In fact, I think we have two
legal systems that sustain our global financial system. That’s the law of
England and the law of the state of New York. If you think of it from a
private law perspective, most globally traded
financial assets are coded in one of these laws. Most law firms who do this
stuff sit in London or New York. And of course, most of the
banks who issue these assets sit in these two places as well. So once you put this in
place and so there is no– there is, of course,
some globalization. There’s some treaty law that
you need for this as well and lends additional
power to it. I will come back to the New
York Convention in a second. But once you add
in the possibility to opt into different legal
systems, how do you do that? Conflict of law rules
and mutual recognition. But I think the most powerful
is really conflict of law rules. And the shift that we’ve
seen in the last 30 years to give a lot of umph
to private autonomy. Used to be that
contracts– that you could opt into the legal system
by which your contract shall be governed for a very long time. But today, it’s of
course, possible to opt into corporate law. The real seat there is pretty
much out of the window. We say incorporation–
a corporation which is a creature of the law. It’s created by a law. It doesn’t exist
outside the law. But most states will
recognize the corporation if it has followed the rules
of the state in which it has been incorporated. Without that, things like tax
havens of the Cayman Island, et cetera, would be
much more complicated. Of course, you could use
maybe the trust as well, but the trust is not as widely
recognized as the corporation, for example, around the globe. So through these mechanisms,
we basically have a situation– and I’m only slightly
overstating it– that if I think of it
as a lawyer and I want to create a financial asset– a new form of a CDO, CLO, or
just securitize some assets– I basically have
a menu of tools. I have my trust. I have my corporate law. I have my collateral, my
property rights, my contract. And I basically pick and
choose from the legal systems, like a menu in a
restaurant, which I will use for a particular
type of transaction to code the interests
of my clients. Backed by the assumption
that these interests will be protected not only in this
tiny little jurisdiction, such as, let’s say, the Cayman
Islands, or even the state of New York, but that I can
trade these assets globally because most other
states will recognize these contractual devices
and lend their enforcement powers to them. And just one additional
thought on the enforcement. So courts might hear these
cases and enforce them. Many of these
private transactions are increasingly not
brought to courts, but handled in private
arbitral tribunals. And for that, we have the
beautiful New York Convention on the Recognition
and Enforcement of International
Foreign Arbitration Awards, which basically
says that members of this convention– 180 plus countries
around the world– will not review the merits
of the tribunal’s rulings, but will lend its corrosive
powers to their enforcement if brought to their shores,
and if there are any assets in that particular region. Through that, we have basically
created a private enforcement regime where the courts
are no longer the guardians of the law, but simply
the executioners of the rulings of private
arbitral tribunals render. So if you think basically it’s
the production of capital, in particular money capital. In our days, we’re
living, of course, in the age of financial capital
and global financial capital. If you look at it bottom-up from
this particular perspective, you see how complicated
it is to regain control over these processes. And some of the
processes, of course, are also deeply baked into
our constitutional orders. They might be abused. There is a better way to
think about how to do this. But we have private
property rights. So once certain
types of claims have been recognized as
private property rights, including expectations to future
returns, which courts have recognized as private
property rights, it’s much harder to dislodge
them even at a domestic level. At a global level, if
you can pick and choose if one country reigns
in and pushes back, you try to go into
a different country. Now, having said
that, I do believe that if the US and England
started serious reforms, we might be in a better world. I don’t think that
any tiny country in the world outside
these two jurisdictions will make much of a dent. They could try it out or
they could do a pilot study on how you might be able to
roll back some of these excesses in using private law
institutions to create private wealth at the
exclusion of others, but I think the key
action would have to be done either here or in
England, and ideally, by both. Thank you. [APPLAUSE] ROY KREITNER: Great. Thanks. So I’m going to take
a few minutes to try to read Katharina, and
Anush, and Jamee, one against the other– with each other and
against each other. I mean, in the sort
of a soup trying to talk about these
three papers all at once in a short amount time
is a bit of a mean trick, but I’m going to give it a try. So I’ve had the pleasure of
reading Katharina’s book, not only the chapter. And so I’ll try to use that
more or less as the frame to talk about the
three presentations. And I think one of the ways
to think about the book is in the context of
the literature that’s been so influenced by Piketty’s
Capital in the Twenty-First Century over the last few years. That book took up one strand
of historical evolution in Marx, according to which
class antagonism plays out in economic struggle, where
capital extracts surplus value from labor in
a progressive manner till you get to a crisis point. Piketty pointed to
an economic logic that was compatible
with Marx’s analysis, but located slightly
at a different level of generalization. The dangerous part of the
logic, according to Piketty, was that capital increases
or the returns to capital increase faster than growth. And that means that capital
holders will progressively capture most of society’s output
or more of society’s output than anybody else. And they leave the rest
behind, and that generates dangerous social effects. The problem with Piketty’s
book, I think, certainly for a lot of legal scholars
and maybe for others, was that it didn’t
really have an account of the mechanism by
which returns to capital outpace growth. That is, that was posited as
a iron law and economic law. There were exceptions,
but they came from bursts of
technology or war, things that were outside the
frame– exogenous shocks. And for the last few
years, I think, certainly in the legal academy,
what a lot of people have been doing is trying
to look for ways to think about the mechanisms for
that kind of thing happening to the extent that you believe
that it does characterize long periods of development. Now, Katharina’s book,
The Code of Capital, I think offers answers
to some of those issues. And they’re at least as
unsettling as the insights that are offered by Piketty. In fact, because the
book takes seriously the mechanisms by which capital
accumulates rather than seeing that accumulation as a
result of some black box or economic logic, it
actually puts a spotlight not necessarily on the
entire historical process, but I think a
spotlight on what’s really special about
the last 40 years. That is, what’s become
the most important dynamic in global financial capitalism–
the capitalism that we live in. And how a particular
set of mechanisms really accelerate
to the point where we might be in a
situation that’s significantly different
from the past. And I think one of the
key things to notice is that we’re not only concerned
with the question of capital accumulation, which is too
general a phrase, I think. But the thing that is troubling
is capital concentration or a radicalization of
the distributive impact of the mechanisms
through which we have seen capital accumulation
go in the last 40 years. And so how does the book work? It offers an account
of legal change that follows the desires of
economic agents trying to make the most of their assets. One way they do this is by
grafting onto those assets’ attributes that transform
them from simple values into capital. So if this were
Marx talking about, he would talk about
this as actually the process of valorization. And as she just mentioned, there
are four important attributes– priority, durability,
convertibility, and universality. And the overall theory is
meant to be completely general. I think the different
assets behave differently, but I’ll concentrate from now
on almost exclusively just on financial products. And the changes that
lawyers are trying to make to financial products in
order to turn them into capital are actually exactly
the kinds of things that economists talk about when
they talk about safe assets. They’re trying to
give the assets the features that
actually make them behave more and more like money. So they try to take assets that
are initially just promises and make them look more
and more like money. And that’s why there’s
a recurrent metaphor of minting in the book, and
it makes a lot of sense. Now, there are a bunch
of different tactics that are at work here–
different processes. They come to a head or a
critical mass over the last 40 years when financial
capitalism, I think, kicks into such high gear that
it becomes a new kind of threat to sovereignty. I’ll have a little more to
say about that in a moment, and that’ll bring together
the presentations. Now, some of the
dynamics are old. So the book references the
enclosure movement and a lot of things about feudal England. There are a few
examples from Rome. But I think things are
actually quite different when they become dominant. So when things take
on a critical mass, their overall effect is
different– size matters. And things that
were once possibly present in some form of a
kernel become actually dominant. And they’re on the
one hand easier to see once they become so dominant. But they may even
change their meaning. So think about how
difficult it was for– this is just a anecdote about
how things that are small may be difficult to see. In the early ’70s,
Milton Friedman wrote an article
about euro-dollars trying to explain that
euro-dollars are actually an expansion of the
American money supply. They’re a money creation
outside the US banking system and outside regulation. And lots of economists
jumped down his throat and said, no, no, no, this
is a balance of trade thing. It’s not actually
money creation. It’s a different
thing altogether. You’re confused. Now, when the market
was very, very small, that kind of denial
about what was going on in euro-dollars
might have not been crazy. I think today, when– I don’t know if
Morgan could tell me if it’s past $5 trillion
or not past $5 trillion– but when the size of
the euro-dollar market is beyond any one aspect
of the money supply, it’s clear that that’s
what is happening. That is, something
that begins privately without any public sanction
is recognized and absorbed, and goes to the very heart of
what the money system becomes. So now to bring these
things together. Jamee and Katharina, I think
begin with a similar insight. And this is a general insight
about property systems. Property systems define who
can make use of resources and in what way. And a property system
is a regime of rules. It’s basic building blocks
or statements of law. So this brings their
outlook together. Those are legal determinations
about rights, privilege, powers and immunities that
people enjoy vis-a-vis one another in relation to
resources– the shorthand. So as Chris said
in the beginning, there are liberal
mythologies of rights that try to paint a picture
of the property regime is pre-political or as a
one-time political settlement that defines
constitutionally the realm of individual freedom. And for all these
accounts that are really typical of a lot
of economic thinking, the important point
is that the regime is just once and for all. Perhaps it evolves very
slowly piecemeal in the way that custom evolves, but
it’s found, it’s spontaneous, it’s non-directed. It’s not open to manipulation,
except by the kind of abuse that’s initiated by
rapacious states. But Katharina and
Jamee actually they link onto legal realist
and critical legal studies work in this field and
say emphatically no, these systems are
constantly in flux. That is, the property
regime is always moving. They cannot avoid infusing their
development with endless value judgments well beyond some
abstract sense of protecting or instantiating freedom. And in this they’re very
much on the same page. But there’s more. And I think there’s a
stylized statement of saying, oh, well, these
things aren’t neutral. They entail value judgments. But then there’s another step. And here’s where
I think things get interesting and controversial. So in Katharina’s vision,
people who have assets direct their lawyers
to improve those assets along the lines of priority,
durability, convertibility, and universality. Sometimes they need
the state to do this. And in that case,
they might lobby, they might even try to capture. At other times, they can
just innovate contractually. And then they navigate the
system as best they can, either to avoid detection or
they play it low visibility politics to get unheralded
recognition by administrators for the innovations. And this kind of piecemeal
action to change the system– this playing for the rules– is especially powerful when
the resources in question are more abstract. So why is that? For these assets, there’s really
no fallback without the law. So if you buy a cow as an
investment and the legal system falls apart, you can still
drink milk and make cheese. But if your legally
backed power to enforce a contract or collective
debt falls apart, you have nothing except your– unless you have other
ways of persuading the person who owes you, you
don’t really have much at all. So abstract property
needs better protection. And here you can think
about how clumsy old forms of protection– so
if you wanted to make a very big loan in
the Middle Ages, what did you do to
take collateral? You took a hostage, which is
really expensive and cumbersome and not a fun system. So the centrality of having
some kind of legal backing for your abstract obligations
is really crucial. Now, it turns out that
for the last 40 years, this dynamic of trying to
gain better legal protection is more and more important. And this is not only because
abstract assets are a larger portion of total wealth. It’s in part, because of that. But also because of the
transnational element with the ability to
choose your locale at the press of a button. So this is also an old dynamic. In the 18th century,
people already realized that if you had paper
assets, you could move around and you could escape royal
authority better than if you had land. But I think now it’s a
dynamic that’s on steroids. So states compete to attract
business just as they compete– so just as they have
tax competition, they compete regarding legal
rules and legal enforcement. Not just with each
other, but also with for-profit arbitrators. So what we see here– and this
is where the three of you, I think, come together– is that actually three
of the most basic aspects of sovereignty are
for the past 40 years, maybe a little longer, under
greater and greater challenge. So three different things. One is the claim to be
the ultimate enforcer of legal norms, because the
parties can pick and choose their legal norms. Second is the
prerogative to tax, because strong parties
can choose their domicile for tax purposes. And third, the sole
right to make money, because as shadow banking or
the euro-dollar market indicate, state banking regulation lets
actually a great deal of money creation go on
beyond the ambit of its clear institutional frame. So now in those terms,
this begins to look a lot like Anush’s claim. Sovereignty isn’t simply
unchallenged, coercive power. It’s power, and power always
meets with resistance, almost by definition. It’s often, if not
always, negotiated. Sometimes the ostensible
monopoly on violence is not the most
important, certainly not the sole factor in what
people will actually do. So there’s a commonality
there in the thinking. But I think that in other
ways, Katharina and Anush are more at odds than in agreement. So highlighting the idea
that coercion isn’t enough seems necessary. But the jump to the
conclusion that any resistance to pure state action
translates into democracy seems to be an aspirational
idea, but not one that does a lot of work, at
least with the word democracy as people use it in
a normative sense. Now, Katharina,
on the other hand, suggests that when private
actors act to change the code, they’re actually often
undermining democracy. There is a sharing of power in
a system where the authority holder has to negotiate a
settlement with those from whom she expects to tax, or
more directly with those that she wants to have her
money taken by in spending. But there is no sense in
which that bargain must– there’s no necessity
for that bargain to be a democratic bargain. So I think in
general, what happens is the negotiation over
the shape of that bargain is dominated by people
who have resources. Certainly, in the story
that Katharina tells, it’s dominated by players
with a lot of market power and people who are rent-seeking. There are concentrated
interests that today, I think, it would be
odd to consider them as democratic interests. This raises another issue about
the extent to which the state is like any other party. Anush says that the state is
seeking a form of liquidity. That is, in a sense, he
always sees it even when it’s spending as a borrower. But if that’s true,
I think that it’s not borrowing funds at that point. It’s borrowing– when
the state spends, it’s taking some other
kind of consideration. The government spends by
taking goods and services in return for its money,
not by borrowing money. So the government can
do two different things. It can borrow money
or it can spend money. Both could be seen as
taking on obligation, but they’re not
exactly the same. So the government does need
to generate acceptability, without which it can’t spend. If people won’t actually give
it what it wants for money, then it won’t be able to spend. That seems still
different from being subject to the same liquidity
constraint as other actors. Now, this might seem
like a technical point. But I don’t actually think
it’s completely technical. I actually think that it’s
important to see why the state is not just like another bank. And not only for the question of
whether the states that we know today are actually
behaving completely differently, but certainly to
explain lots of state action in the past. The issuing of greenbacks
is one great example. But also to figure out
what states could do. So I don’t think there’s
any necessity for us to imagine a state
running its money only through the model of borrowing. That is, only through
the model of banking. Because in some ways
that flattens or erases the very basic
difference that I think is actually worth holding
onto in sovereignty. The idea that the state can
obligate out of nothing, which the banks, I think we
can say thankfully, cannot. Now, I think the
contrast between a unified autocratic sovereignty
versus a dispersed market– if that’s the distinction,
then the latter– the dispersed market–
sounds like democracy. And if the only thing that
you could have in the world was either a true autocrat with
small holders as clientele, that might make sense. But I think, in our world
where sovereignty is actually fragmented, where there
are excellent opportunities for capture, and where
the market or at least market forces represent a lot
of highly concentrated wealth, then equating the demos with
the market is a problem. Now, two last
issues, and one draws straight from a comparison
between Katharina and Jamee. Katharina’s emphasis
is on the way that private actors are
really the motivating force, the driving force for change. And in Jamee’s
presentation, it seems like the complete opposite
is the truth, which is public officials, at
least sometimes, play a crucial role as first movers. And this came through in
Chris’ introduction as well. And it’s especially true
where the change at those junctures where change isn’t
piecemeal or incremental, but rather monumental. So general
incorporation statutes, establishment of national
banks, unification of monetary systems,
major shifts in the basis of currency, and
maybe even bailouts, there are all instances where
public minded people in constitutional conventions,
or in legislatures, or in executive positions,
actually take the lead in shaping fundamental
market institutions. So this still
accords with the idea that the legal code
enjoys a kind of primacy in creating and
developing capitalism, but it takes some of
the edge off the claim that change is primarily
driven by private rent-seekers. Private rent-seekers seem
particularly important as the antiheroes for the
last 40 years, I think. But I think, as
a general formula for capitalistic development,
they might be less central. But we could flip
things a little bit and turn this into a
question for Jamee. So there are lots of
things in Jamee’s paper that say functionalism
is not a good theory. There are a lot of references
to a lot of critical work that attack
functionalist histories. But when we get
into the analysis, it seems like that function
and necessity is actually doing a lot of work. And especially, the necessity
of certain governance outcomes. And there is a real puzzle
about how open-ended things are and how many of the results
that Jamee finds actually could have come out the
other way, including things like the
monopoly on note issue. So there are sentences
in the piece that say the monopoly on
note issue was actually a foregone conclusion. It was part of
unifying the currency. It’s unimaginable that a state
would have multiple currencies, multiple ways to pay debts. And I think one of the things
that we see over the last 40 years is that
states are actually possibly pretty loose about
their monetary sovereignty. So one of the things
that’s happening, even in a place like the US– if you think about
euro-dollars– but certainly for almost all other
countries in the world, is that states don’t hold on
to their monetary sovereignty as tightly as we might imagine. And many states actually live
with multiple units of account. It’s not unimaginable. So I want to finish up, because
I’ve taken up a lot of time. And I want to ask, if we were
to put these three presentations on a map of how
monetary politics works, I think for Jamee
the state leads. Its governance
considerations dominate. They’re in hybrid
relation with the private, although the private
in your story is really the Bank of
France, which is not your typical banker in any way. I mean, these are
bankers who are worried about too much credit. That’s should signal to
everybody that they’re not the typical private bankers. For Anush, states are
basically market actors with a slight edge,
and their limitation is definitionally democratic. And for Katharina,
private actors dominate by writing
the code of capital as part of their
attempts at rent-seeking. Now, these seem to open out onto
different horizons for change. Katharina seems very
pessimistic about the past, but somehow in principle
possibly optimistic. Because if the code is
constantly being rewritten, it may be hard to
chase private actors. But if we tool up, maybe
we’ll just get better at it than a lot of bankers. There’s certainly many more
of us than there are bankers. That is, there’s
certainly many more people who don’t necessarily
share the interests of the 1%. So in principle, there
could be something optimistic about that. And that kind of possible
optimism, I think, collides with Anush’s somewhat
metaphysical account of money through capitalism. That is, that capitalist
money being the best money. I’m not sure that I understood
where that was heading. But it seems to me that it
posits almost as a necessity that states actually have
to outsource money creation. And that we actually
have to have banks to consider what money really– ANUSH KAPADIA: It could
be nationalized banks. ROY KREITNER: –really is. So this is a good
issue for discussion. It just seems to
me that it would be possible to constitute
a money system and one that I could imagine
as being more democratic through
a system that wasn’t necessarily profit-oriented in
its money creation activities. And so the last thing I’ll say,
which will take one minute, is that I think that one
of the interesting things about these
presentations together is that they show
that the closer we get to the core of valuation,
the bigger the effect on our democratic lives can be. The reason that valorization
is such an important thing is that it turns into the
way we value everything else. And so writing the
legal code of property is important, even for cows. But it becomes
much more important when the thing that
we’re coding about is the kernel of how we make
value for everything else. So we have left ourselves very
little time for discussion. But we can have some
discussion, right? Yes? I was pointing behind you. Yes. ANUSH KAPADIA: I think
there’s a mic here. CHRISTINE DESAN: You
don’t need a mic, you can just talk louder. AUDIENCE: This is a
question for Anush. So you pointed out
that the survival constraint of states in
a pure banking system exists, but it’s weak. ANUSH KAPADIA: Yes. Depends on which state. AUDIENCE: Where it’s under
democratic sovereignty, you say that when
the state borrowers [INAUDIBLE] the future product. Now, I wonder whether we
should replace product by money, because
there’s two ways in which these obligations can be– ANUSH KAPADIA: Adequate. AUDIENCE: –paid
back in the future. So either people actually
forego something in the future, or the money supply
keeps rising, and these obligations
are met in that way. In which case, [INAUDIBLE]
of the state is even weaker. Or at least that’s one
aspect of this weakness that you didn’t put up. ANUSH KAPADIA: So would
acceptability be– but anyway. ROY KREITNER: Let’s take
a bunch of questions and then get back to it. Yes, please. AUDIENCE: Thank you. Anush, you get into the
political economy of money, of accepting money. And Roy, you make the good point
that one doesn’t necessarily lead to democracy. So if we want no corruption
and no forced inequality, isn’t it up to
production of money or the printing of money
inherently corrupt, in that the first
receivers of that money get to buy the goods
in the marketplace at a discount versus the
latter receivers of the money? So the later that you
receive the money, the less your
purchasing power is, because prices have gone
up in the marketplace due to the scarcity of goods. So the first
receivers of the money are generally the state
and the bureaucrats and the military industrial
complex that fund the wars first, Christine talked about. The latter receivers
of the money tend to be those
who have less skills and are in the service
economy or manual labor. So is that not a form
of forced inequality that then leads to a
totalitarian state– now, that may be a totalitarian
state with fur-lined handcuffs. ROY KREITNER: All right. Yeah. Back. Yes. AUDIENCE: Yeah. I just wanted to
build on the point that you were making
about the fact that the state isn’t getting
money from the private sector, but getting real
goods and services. [INAUDIBLE] common about
taxation and future present [INAUDIBLE] value. It seems to me
it’s not this issue of periodically taking
money back from individuals, but putting the public under a
state of being in constant risk if not guaranteed monetary
obligations that are imposed or enforced by the public. So whether that’s court fees
or the risk of hitting someone with your car when you
go outside and being sued or things like that. Even if you don’t have a
tax bill today, the fact that you know you may be
under risk for incurring monetary obligations or forced
to in a monetary production economy, at which point the
state’s relationship with you is not creditor/debtor,
it’s a vendor/salesperson. You’re a payee. And your willingness to accept
their money for real goods and services means that
you’re willing to do whatever they want at that point. And that isn’t a credit
relationship as far as I see. ROY KREITNER: Yes. AUDIENCE: Yeah, so my
question is also for Anush. I argue with people all the
time about the constraints of government spending. And in courts, they do
face a survival constraint. And when they
default, it doesn’t look like everyone
else, where you just don’t pay the money back, it
looks like paper inflation or something like that. The currency is disvalued. But my question for you is, what
do you see as taxation’s role in the government needing
in its survival constraint? ROY KREITNER: Please. AUDIENCE: I have a
question for Katharina. And I was wondering, so
you spoke very explicitly about the mechanisms
or the legal tools that lead to a wealth
accumulation and [INAUDIBLE].. Could you maybe talk
about the reverse. Which kind of legal techniques
fall out in the competition and in the
internationalization that would have a redistributed character? So what are the things that
get chipped away along the way? AUDIENCE: I have a
minimal question. Roy concluded using the
word value and values and valorization. And in my listening through
the different [? filters, ?] the word value
and the form of it are actually kind of distinct
and used differently. And no doubt that word
will keep coming up in the course of the conference. So I am asking for
each person to clarify what they mean by the term. And you put it in quotes. KATHARINA PISTOR:
There’s one in the back. In the right back. ROY KREITNER: Yes, in the back. AUDIENCE: Thank you. And this is also
a comment as one of the early contributors to
the revival of chartalism, I do want to correct the
impression that we are wishing away political constraints,
where the earliest distinctions that we made was between broad
and specific propositions of chartalism. And the broad propositions
that those that carry the historical time of
the specific propositions of the world and
are historically and politically contingent. So from the very beginning,
we have been very engaged in the question
of power and what is this relationship between
state and sovereign subject. And so here, the constraint
on the government– I should also say,
that chartalism was not originally from
Minsky, but [INAUDIBLE].. And despite Minsky’s really
valuable contributions, chartalism has a lot to
do with [INAUDIBLE] rule, [INAUDIBLE] rule. But I just want to say that the
constraint on the government is not [INAUDIBLE] constraint. [INAUDIBLE] here that
we’ve been hearing. But it’s really a constraint
about acceptability and the rethinking
of this relationship that is inherently
coercive between the state and its subject. So as I understand,
our project here is that we’re
trying to figure out how to democratize
this very relationship in this particular
point in time to be able to avoid the [INAUDIBLE]
for the public purpose. ROY KREITNER: So we’ll
take one more and then– yes. AUDIENCE: My question
is for Professor Moudud. It seemed like you framed
it in the beginning with an interesting
question of why was French capitalism
more constrained by its retained earnings. And that it seemed
like you were pointing in the direction of
a central bank that was too parsimonious
with credit, too tied to [INAUDIBLE]. But I didn’t see the
connection between those two. I mean, it seems plausible, but
I didn’t see that sketched out. ROY KREITNER: So I
think what we should do is the three of you should
take about 90 seconds each– [LAUGHTER] –which I know that you’ll give. JAMEE MOUDUD: Gee, thanks. [LAUGHTER] ROY KREITNER: Or maybe
a little bit more, but know that you’re eating
into people’s coffee break. KATHARINA PISTOR: I can
do less than 90 seconds. ANUSH KAPADIA: Feel free. KATHARINA PISTOR:
So I’m just going to answer mostly your question. I think what is
being chipped away, it’s sort of a constant thing. So it’s mostly exemptions to
play by the general rules, even by general
bankruptcy rules. So you do bankruptcy
safe harbors. You do other exemptions. So the chipping away is mostly
to shift the interpretation or actually application
of certain rules and sometimes get
explicit exemptions. So I can’t point to specific
institutions out there. On the value issue,
I’m thinking mostly about the creation of wealth– monetizable wealth over time. That would be my definition. JAMEE MOUDUD: So just picking
up on that first point, and then I can just make a
comment about Roy’s comment. The story that I
told today was just focusing on one moment
of this constraint. But in fact, the bigger context
is the post-World War II, when there was a very
specific targeted allocation of credit to promote
export-led industrialization. So what I do is I say that
in the previous period there was a history in
which the Bank of France was clearly central, but
there was also restrictions in regards to general banks. So there’s this whole
literature on whether or not the supply of credit was
adequate, in general, in France, in terms of the
promotion of the concentration of capital. So this is just one
part of it, and I think that the issue of the
general influx of liquidity into the banking system. So provincial
banks were involved in financing investment
by the early 20th century, but they were still
smaller banks. And so the rate of
capital accumulation was also rather small compared
to what happens afterwards after the war. On Roy, do we think about
governance as functionalism? And the answer is,
I don’t think so. I mean, I think that what
was happening over here was an attempt at governance,
which in fact, did not really work terribly well. So it’s not as though
that the state had somehow foreseen the fact that you
need XYZ policies in order to promote exports. And I think this comes back to
the issue of sovereignty, which is the sovereignty really comes
I would say from having access to foreign exchange. And that really was
not very well done until after the
Second World War. So it was governance, but
it was not functionalist in the sense of
efficiency, if you want to think of it
that way, because it was ridden with politics and
the political power of BOF. And just one final thing,
which is that I think we need to be a little careful in
not using bankers as some sort of a homogeneous category. So in the case of
France, there were some bankers who wanted
to actually promote expanded credit supply. In fact, I make that
point quite clear. But then you had others,
including the Bank of France, who were more monetarist
inclined and they were concerned about– so there was tension
between the two sides. ANUSH KAPADIA: So thanks for
the questions and thanks, Roy, for your very
keen observations. I think you’re absolutely right,
that the more dematerialized the value gets, or the
asset gets, the more salient the legal minds are. And I guess perhaps
I should clarify. For me, I don’t think this
democratic sovereignty point is a normative point at all. It’s completely
a positive point. And it rests on the
following claim. How do we legitimate taxes? That’s basically what– Now, I don’t see the method by
which we legitimate taxation. Namely, we’d rule in
the name of the people. We legitimated in the name
of democratic sovereignty. I don’t see that– as the lady said– as a contingent political fact. That is axiomatic. We don’t have in
the modern period another ground for
legitimating governance. That’s not available to us. And where that exists,
that’s an outlier. That’s clearly an outlier,
the Kingdom of Saudi Arabia. Now, of course,
contingently that can be more or
less of an eyewash. That can be more or
less hollowed out. That is deeply a matter
of political contingency. And tax havens are
precisely a hollowing out, just as the shadow banking
system is precisely a hollowing out of the kind
of democratic sovereignty. Absolutely, as a
matter of practice. But no one, as a matter
of legitimating claims, makes any other
statement, any other way of legitimating taxation. That is a constraint. That is a political constraint. States are forced to
legitimate their taxation in the name of democracy,
in the name of a demos. And in a sense, the more it does
that in fact, the more bigger its taxation catchment area is. And therefore, its ability to
bend the survival constraint is. So the survival constraint– in a sense, acceptability,
the survival constraint, are the flip side of
legitimacy, if you like. The banking school rendition
of the idea that the old [INAUDIBLE] of the state
having the legitimate monopoly on values– legitimacy
is not just an eyewash. And it becomes more
or less shopworn depending on the ebb
and flow of politics, but it is absolutely axiomatic. So I don’t see that
as a normative claim. I see that as a statement
of how the world works and how it gives states
differential power. Now, so it enables the state
to inhabit the logic of banking with an edge is
what I was saying. Now, one way I think to link
up to what Katharina is saying, is clearly there has
been a effervescence in the recent past of
private money claims. But in terms of your
list of attributes, one potential pinch point
between the different levels of the hierarchy, public
money and private money, is universality
and convertibility. So when we move from
capital to money, we are in the sense
moving from the asset side to the liability side. And what banks want to ensure–
what private banks want to ensure is that
their money, which is private liabilities
of the banks, are convertible for state money. And that makes this big
10,000-pound gorilla that we all have, namely our state,
that gives us leverage. Because the terms on which
we can sanctify and do convertibility, which of course
then leads to universality, because we’re not carrying
around private claims in our pockets, we’re
carrying around state claims. That market making,
if you like– the terms of that market
making between private money and public money– that’s
a huge pinch point. And I think if we can focus
our efforts there and change– so what’s happened
contingently is that a particular
balance of power has configured those terms
radically anti-democratically. But the tools are there. The tools are there to
render that more democratic and the state has to do it. ROY KREITNER: That’s a
good optimistic place to end our session this morning. Thank you very much. [APPLAUSE]

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