Some fair proportion of readers are already aware of the proposal to have the U.S. Mint produce a $1 trillion face amount coin to be deposited at the Federal Reserve and credited to the account of the Treasury Department to pay Federal bills. The $1 trillion would render the ‘debt ceiling’ debate irrelevant because it wouldn’t be funded with debt. It would demonstrate the contrived nature of the austerity ‘debate’ in Washington. Most fundamentally, it would lay bare the social nature of the institutions put forward as immutable facts. The current arrangement of affairs, debt based money, is not socially ‘neutral,’ it serves the political economic interests of some to the detriment of others. By making this visible, the trillion-dollar coin idea is extremely useful. So of course, the White House has said it has no use for the idea.
Why the coin would need to be platinum is a misleading technicality—the U.S. Mint requires no relation between the face amount of a platinum coin and the value of the metal it contains. That is, the Mint could use $100 market value of platinum (or in theory, zero cents worth of cat-shit or any other material) to create a coin with $1 trillion face amount and $1 trillion (digital) currency would end up in the Treasury Department’s account. More broadly, the U.S. already has a fiat currency—there is no relation between the face amount of ordinary currency and its component value. (A $500 bill has no more component value than a $1 bill). The value comes from the face amount on the currency and its designation ‘legal tender.’
The Federal Reserve creates large quantities of money out of ‘thin air’ on a regular basis already—this is where the trillions of dollars used in its Quantitative Easing and other stealth bank bailout programs comes from. But most money is created through the banking system as ‘private’ credit. There is no reason in principle why the Federal government shouldn’t create money directly and do so in the public interest. The (quasi-private) Federal Reserve uses the sleight-of-hand it serves the public interest with fully developed banker economics taught as fact in Graduate economics departments and with occasional warm gas being passed that debt based money be ‘managed’ in ways that coincidentally constitute the political economic wish list of the financial plutocracy. The view the Federal Reserve serves the public interest requires the ‘Geithnerian’ conceit the public benefits from a corrupt, predatory financial plutocracy.
Considered another way, ‘debt,’ as in Federal and household debt, represents obligations that money, per se, does not. What is useful in the platinum coin idea, and the central point of derision amongst protectors of the status quo, is if taken to its logical conclusion, there is no need for debt—government could create and distribute as much money as is needed via public policies in the public interest. The arguments for the existence of debt are straightforwardly ideological—government is less efficient at allocating resources in capitalist economies than ‘private’ interests and is prone to corrupt distribution. Banks, motivated by their desire for profits, are efficient allocators of money as debt. And relating government expenditures to receipts from taxes with excess spending funded with debt is a ‘natural’ guard against excessive shifting of resources from private interests to public. That outside the context of historical struggle this arrangement of affairs is entirely arbitrary is the great missing link in modern economics.
I used this very basic capitalist arithmetic in another piece recently and it serves a related purpose here: Revenues – Costs = Profits. Capitalism is theorized to be ‘efficient’ because the profit motive is purported to induce capitalists to minimize costs—lower costs mean higher profits. Without the profit motive, goes the argument; there is no incentive to produce the most output at the least cost. What is always left out of this formulation is unless the capitalist is forced to bear the costs of production capitalism is nothing but an externality generating machine—capitalists force everyone else to pay their costs. For instance, without developed and vigorously enforced environmental regulations, it is economically rational for a capitalist to maximize profits by dumping toxic waste that would cost him or her $10,000 to safely dispose of into a city’s water supply that then costs the city $1,000,000 to remove from the water. This is the ‘efficiency’ of capitalism. Capitalism was only ever theorized to work under conditions that capitalist capture of government assures would never materialize.
With respect to money, the West is still suffering from the most recent bout of externality generation in the banking sector. Banks (Wall Street) are by mandate expected to maximize profits and individual bankers are fabulously well paid to create the appearance that banks do so. But absent perpetual government guarantees of the banking sector, banks are spectacularly bad at ‘efficiently’ allocating capital. The costs of banking crises in terms of external economic destruction—the destructive effect these crises have on the rest of the world, are many multiples of the total profits banks have ‘earned’ in all of history. And quite aside from the systemic catastrophes the banking sector regularly creates, ‘prudent’ banking provides incentives to lend to capitalist enterprises most effective at forcing their costs of production onto others because doing so increases the probability of the banks being repaid. ‘Efficient’ finance lends to ‘efficient’ industry at maximum expense to the public.
Another canard used even by economists favorable to the idea of the platinum coin is that some level of money creation is inflationary. Quite astounding in what proponents of this view are forcing themselves not to see is the asset price inflation produced by the banking sector and the Federal Reserve in recent decades. The 1980s saw residential and commercial real estate bubbles that ended in a crash. The 1990s saw the mother of all stock market bubbles that ended in a crash. And the 2000s saw the mother of all private debt bubbles that ended in a crash. And with a tad more respect than is actually due, smart people should not waste their time with ‘bottom up’ theories of financial bubbles when corrupt bankers creating masses of money through financial leverage so well explain them. Not all bubbles in history were thus created, true enough, but why let the search for maximum generalization hide the facts in front of our eyes? So yes, inflation can be a problem. But on this, Hyman Minsky and (later) Irving Fisher have far more to offer than Milton Friedman.
What the platinum coin idea should generate is a robust dust-up over the use by plutocrats and their servants in government of contrived emergencies such as the debt ceiling and the ‘fiscal cliff’ to pose existing institutional arrangements as immutable facts in order to push ever more social wealth up the income and wealth ladders. On this Congressional Republicans may just have it right for all of the wrong reasons—why should the nation borrow money to pay for essential services when we can simply create the money ourselves without debt? Integrated with the nationalization of services such as education, healthcare and banking that don’t benefit from ‘private’ sector involvement, the direct issuance of money by the government would remove the rationale for the moral chide over government spending from deficit hawks and could explicitly establish serving the public interest as the goal of government spending.
Mr. Obama’s rapid dismissal of the platinum coin idea, even as a bargaining piece in ‘negotiations’ with Congressional Republicans (and Democrats), likely has two components. In the first, Mr. Obama has been a staunch proponent and defender through every policy that has come before him of the reigning plutocracy. The insight into the social nature of our institutions provided by the platinum coin idea is no doubt threatening in that it could lead to a lot of other uncomfortable questions being raised about the existing social order. Second, by removing the platinum coin as a strategic tool, Mr. Obama can allow Republican ‘austerians’ to take responsibility for cuts in social programs such as Social Security, Medicare and Medicaid that he supports but that his long-suffering political base doesn’t. But again, if the Federal government can simply create the money to pay for these programs, as it can and should, what could possibly be the motivation for hiding behind the canard of ‘fiscal discipline’ to cut them other than fealty to plutocrat control of the political economy?
In dismissing the platinum coin idea the White House pointed to the Treasury Department’s contention it wouldn’t put the idea forward and the Federal Reserve’s claim it wouldn’t accept the coin if offered. Nonsense. The Treasury Department will do what the President tells it to do and in legal disputes with the Federal Reserve over established law the Treasury Department decides the matter. The further contention the monetary and financial systems could be called into question and / or be discredited assumes they haven’t been discredited already. Even casual readers of the business press would have noticed everyday reporting on the doings of the major banks and the Federal Reserve reads like angry missives from the radical left of decades past. Radical critique of the financial status quo is thoroughly mainstream in 2013. A former Citicorps executive to replace Timothy Geithner at Treasury? Fuck you!
Regardless of whether or not official Washington uses the idea, radical versions of the platinum coin idea should continue to be put forward. The broad frames used in political-economic debates in Western Capitols are designed to bring about outcomes in line with the interests of Western plutocrats. In fact, without effectively calling into question these frames the cognitive disjuncture needed to shift these institutions back toward the public interest won’t be found. The existing money system is at the heart of these institutions and it is not socially ‘neutral.’ And only by putting it forward as if it was does the existing order retain control of ‘the conversation.’
Rob Urie is an artist and political economist in New York.