There is a brief history of USA money and various proclamations by our founding "fathers" in Ch3 of my book, Understanding Modern Money. The discussion, of course, relates all this to MMT. Tom Paine: "no nation ought to be without a debt for a national debt is a national bond"; Alex Hamilton: "a national debt if it is not excessive will be to us a national blessing becfause the taxes needed to pay and service the debt woiuld force the masses to work harder to pay those taxes" and so on. The continentals were not driven by taxes (TDM) because the Continental Congress did not have the power to tax. On the other hand, we can see the deficit hawks among our founders: Jefferson "take from the govt the power of borrowing" and Jackson "public debt is a national curse".
There are also statements in Adam Smith about various colonies successfully backing their notes with taxes. Mat Forstater has written extensively on early recognition by economists that TDM (taxes drive money).
Farley Grubb has written interesting things and is perhaps "the" expert on early US monetary history. Some of his writing sounds a lot like MMT, although he had not known about it until I met him at a Harvard conference in June.
L. Randall Wray
Professor, Economics, University of Missouri-Kansas City
Senior Scholar, Levy Economics Institute
Modern Money Primer: http://neweconomicperspectives.blogspot.com/p/modern-money-primer-under-construction.html
From: AFEEMAIL Discussion List [[log in to unmask]] On Behalf Of Mayhew, Anne [[log in to unmask]]
Sent: Friday, August 12, 2011 6:30 PM
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Subject: Re: [AFEEMAIL] Did Robert Morris understand the kernel of MMT?
I do not know about a definitive paper on Morris and MMT but I would suggest that all who are interested in the relationship of government debt and money in the U.S. read Alexander Hamilton's addresses on the subject, as well as his letter to George Washington in which he explains how it all works. Hamilton said that a "well-funded national debt will pass current as specie." I don't have the sources to hand but that that is more or less the exact quote. Hamilton wanted to refund the largely worthless debt of the Continental Congress and of the various colonies/states because he did understand that the debt would "pass current as specie" and because it thought it important to honor debts so that the government(s) could go on borrowing.
Both Hamilton and Morris were influenced by the history of the Bank of England, which was also funded on a national debt. I have recently reread Bagehot's LOMBARD STREET. It is very good and has good passages on the relationship of government debt to money in a world of commerce and double-entry bookkeeping.
From: AFEEMAIL Discussion List [[log in to unmask]] on behalf of Reynold F. Nesiba [[log in to unmask]]
Sent: Friday, August 12, 2011 11:00 AM
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Subject: [AFEEMAIL] Did Robert Morris understand the kernel of MMT?
From today's LA Times. Robert Morris in 1784 appears to have a firmer handle on how government finance works than Paul Krugman of 2011. I'm certain if I am wrong on that point, then someone on the list will gently educate and elucidate.
Is there a definitive paper on Morris and MMT?
By Charles Rappleye
August 12, 2011
With Congress and the White House<http://www.latimes.com/topic/politics/government/executive-branch/white-house-PLCUL000110.topic> stalemated over the question of debt, it may be reassuring, even instructive, to consider that our nation was embroiled in a crisis over public debt at the very dawn of its history.
In fact, the primary motive that brought delegates to the Constitutional Convention of 1787 was to sort out vexing questions of debt and taxes.
The debt in question was that owed by the American rebels to the governments of France and Holland, two key allies that had provided funds to support Washington's army. Those loans were necessary because the currency issued by the Continental Congress in the early stages of the war had been exhausted, first through unrestrained spending and finally through inflation and loss of confidence. Funds were also owed to American businessmen who had purchased domestic bonds in an effort to prop up a faltering Congress.
The funding situation of the nascent American government slipped into genuine crisis in 1780, prompting Congress to appoint Robert Morris<http://www.latimes.com/topic/arts-culture/robert-morris-PEHST001405.topic>, a celebrated Philadelphia<http://www.latimes.com/topic/us/pennsylvania/philadelphia-county/philadelphia-%28philadelphia-pennsylvania%29-PLGEO100101023010000.topic> capitalist, to the new position of superintendent of finance.
The first object of the program Morris put into place was to acquire for the government what Morris termed "the inestimable jewel of public credit."
This was a relatively new conception, the idea that public debt, supported by public confidence, or credit, could actually be a boon to the people at large.
With debt financing, Morris advised, the government could undertake and achieve large projects: fielding an army, for example, or after the peace, building roads and "internal navigations."
This had been demonstrated in the early stages of the war, when Congress financed the army by printing money, but public confidence in the new American currency had been squandered.
That confidence could be restored simply enough, Morris said, by the payment of taxes. That strategy may seem prosaic enough, but consider the tone Morris adopted in pressing the governors of the states to fund the operations of the Congress. "It is by being just to Individuals, to each other, to the Union," Morris insisted, "by generous grants of solid Revenue, and by adopting energetic measures to collect that Revenue; and not by complainings, vauntings, or recriminations that these states must expect to establish their Independence."
Preaching the gospel of taxation at a time when many Americans were fighting against the tax authority of Parliament was a doomed enterprise, however, and Morris failed to obtain either sufficient revenues from the states nor taxing authority for the central government, which was then little more than a debating forum for what were sovereign states. Fortunately for the American patriots, the blunders of the British high command brought the war to a close, and the funding questions were set aside.
But not for long. A postwar recession and the deepening political malaise of the newly free colonists brought matters to a head, and in 1787 Morris joined with a coterie of nationalist-minded colleagues —George Washington<http://www.latimes.com/topic/politics/george-washington-PEHST002264.topic>, James Madison, Alexander Hamilton<http://www.latimes.com/topic/arts-culture/alexander-hamilton-PEHST000856.topic> and the rest — to establish a central government with taxing authority that would finally fund the lingering debts from the war. In the process, they replaced the 13 colonial currencies with a single, national medium of exchange, established a central bank and inaugurated a freewheeling market for government securities that set the stage for a decade of robust economic growth.
There were other critical elements to the Constitution, of course, regarding the shape and scope of the government and its powers, but debt and funding were at the top of the agenda in Philadelphia.
Lest there be any doubt as to the centrality of debt in Morris' thinking, he spelled it out in a public address upon leaving office in 1784. "The payment of debts may well be expensive, but it is infinitely more expensive to withhold the payment," Morris warned. "The former is an expense of money, when money may be commanded to defray it; but the latter involves the destruction of that source from whence money can be derived when all other sources fail. That source, abundant, nay almost inexhaustible, is public credit."
At a time when congressional bickering and posturing has cost the United States its prime bond rating, and when markets around the globe are looking to Washington for leadership, the solons of the House and Senate might best look to the past for the sort of conviction and sound reasoning that first set America on the path of unprecedented economic success.
Charles Rappleye is the author of "Robert Morris: Financier of the American Revolution<http://www.latimes.com/topic/arts-culture/history/american-revolutionary-war-%281775-1783%29-EVHST000002.topic>."
Copyright © 2011, Los Angeles Times<http://www.latimes.com/>
Reynold F. Nesiba, Ph.D.
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