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There is nothing new under the sun

The debates that are played out in the parliaments around the world at present about the state of public finances are not new. The debates, which are amplified by the media who typically do not understand the issues involved yet mostly take a conservative position because they can sell more products (papers, on-line access etc) that way, appear to be pressing and all sorts of emergency language is used. The characters who write these doomsday scenarios mustn’t ever reflect on what they say from one day to another relative to the historical record. Their arguments against the use of budget deficits and invoking doomsday scenarios regarding public debt reduction are not new. Given many of these conservatives are also into the bible (pushing evangelical diatribe) they might have reflected on – Ecclesiastes 1:9 – which noted that “What has been will be again, what has been done will be done again; there is nothing new under the sun”. Indeed not. One character in history with a penchant for religion (Mormonism) however had some insights in the operations of government budgets and public debt. He was also a long-time former Chairman of the Board of Governors of the US Federal Reserve System.

In the Economist Magazine last week (July 26, 2013) there was a short offering – The new monetary ideology – from Robert Skidelsky, who wonders why there is such a “new enthusiasm for unconventional monetary policy” given “that no one is quite sure how it works”.

He conjectures that “quantitative easing is popular among policy makers and conservative because it not only maintains the moneterist/neo-liberal prioritisation of monetary policy over fiscal policy in providing a counter-stabilising role but, also, does so, without any active role for treasury.

None of the conservatives can say that its works or how it might work but as it involves no treasury involvement – it must be good.

Robert Skidelsky says it is:

… a happy mix of self-interest and ideology. It has always been thus; which has not stopped economists discussing questions of policy as though the only thing to get right was the theory of the matter!

The dislike of the use of fiscal policy is not new. But doesn’t it amuse you that everytime there is a major crisis, those who in better times preach as if the very survival of the world depended on it that fiscal policy is the devil’s work, have their hands firmly out taking all the government assistance they can get their grimy hands on.

Anyway, as the introduction noted – we have been here before, and, as long as their are conservative vested interests who profit from privatising the boom returns and socialising the downturn losses, we will be there again.

On September 8, 1938, – Marriner S. Eccles – the former Chairman of the Board of Governors of the US Federal Reserve System (1934-1948) presented a speech – Address Responding to Criticisms Leveled by Orval Adams – which was a response to an earlier Speech made in May 1938 by Orval W. Adams, who was then the President of the American Bankers Association.

In that Speech, Orval Adams, who subsequently wrote articles such as – Inflation: The Termite of Civilization – and other articles where he expressed fears of inflation and an erosion of the standing of the US dollar, had personally attacked Marriner Eccles for his position on fiscal policy.

Marriner Eccles was a central banker who understood the primacy of fiscal policy and the need for monetary policy to be compatible with the fiscal stance deployed by treasuries. In that sense he advocated positions that are the polar opposite to the policy positions taken today, which are retarding growth and ensuring millions of workers are unnecessarily without work.

In that sense, he understood that fiscal ratios should not be the targets for policy. Rather, policy should concentrate on maximising real output and prosperity. Again, the the polar opposite to the policy positions taken today.

The conservatives claim they want to maximise welfare and use a litany of economic theory that purports to justify how extensive deregulation and budget surpluses help to achieve that position. But the reality is very different.

They deliberately create unemployment and poverty and try to spin a narrative that this is labour market reform or essential fiscal consolidation. Marriner Eccles clearly saw through all of those arguments when they were used in his time. Same arguments, same lies.

A full record of Marriner S. Eccles work (writing, speeches etc) is available at – The Marriner S. Eccles Document Collection.

You can also learn more about Marriner S. Eccles in this excellent working paper by Thorvald Moe – Marriner S. Eccles and the 1951 Treasury – Federal Reserve Accord: Lessons for Central Bank Independence.

Thorvald was visiting Levy Institute last year and is a central banker from Norway. I met him at Levy while I spent a week there with Randy Wray in February 2012 and had very detailed conversations about this material. He also plays a mean blues harp as all central bankers should!

Footnote (9) in the paper notes that:

Eccles was famously rebuked by Congresswoman Jessie Sumner (R, IL) during a House of Representatives hearing on the increasingly big-government, statist policies of the Roosevelt administration and the Federal Reserve, when she said, “you just love socialism” …

Which is just about the standard of the debate now. Anything that involves the government that does not include military incursions in other nations or suppressing students engaging in campus protests in the US (Kent State) or protecting those who kill disadvantaged (black) citizens etc is labelled socialism by American conservatives.

They always reveal their grunt ignorance when they retaliate with the socialism card. It shows they neither have read Marx nor the derivative literature (and if they tried they gave up because it was above their intellects) nor appreciated the historical record.

Orval Adams was well known for campaigning for the eradication of “economic illiteracy” in the public policy debate yet failed to educate himself accordingly.

Marriner Eccles admitted to being a “conservative” but separated what he called a desire to “to conserve our best traditions, our heritage and our established political and economic institutions” from those who just wanted to preserve the “status quo” and “go back instead of forward”.

The reply to Orval Adams then contained some key understandings of the role of government and budgetary policy. You can read it if you are interested but some key points are worth documenting.

Eccles said he was:

… interested in the money system merely as a means or instrument to that end …

The “end” being to:

… make our profit-motive economy and our democratic system function so that it will produce and distribute more and more of the real wealth which our people want in the form of clothing, shelter, food, and the luxuries as well as the necessaries of life.

Which sounds remarkably like what Modern Monetary Theory (MMT) proponents mean when they use terms like advancing public purpose, or advancing public welfare.

There is nothing intrinsically important about the monetary system. It is a means to an end – to ensure real outcomes are reached to improve the lives of everyone.

Orval Adams was obsessed about the “money lost” in the Government New Deal programs, which in Marriner Eccles eyes had brought “this country out of the deepest depression we ever experienced”.

The fiscal conservatives always focus on financial aggregates or numbers in budget statements and fail to see beyond that. What Marriner Eccles reminded us of that during the Great Depression, America:

… wasted our human and material resources to the extent of far more billions of dollars than are represented in our Government deficits in recent years. And I contend that we cannot afford to go on wasting these resources or falling to put them to better use than
we have in the past. Let’s look at the substance and not the shadow.

Which tells us that the budget outcome is, in a large part, just the record of the private spending decisions (“the shadow”). The substance is the outcomes of those spending decisions – the employment and output growth. That is what matters and we should always appraise that against potential.

The budget outcome is thus not a reasonable entity to target by policy. A currency-issuing government can always “afford” any budget outcome.

The policy targets should all be real – “production of our mines and factories” and what a nation “cannot afford is the idleness of millions of able-bodied workers and of the facilities which they should be using to produce the substance”.

These insights resonate today. There is nothing new under the sun.

Orval Adams has invoked Dickensian narrative in his May 1938 Speech (from David Copperfield) to urge “personal thrift” and he clearly invoked the now over-used analogy between the household and the government budget:

… as a matter of practical common sense we ought to know that what applies to us individually also applies to us collectively.

Practical common sense often fails to steer us to the substance. Too often it loses us in the shadows. Please read my blog – When common sense fails – for more discussion on this point.

Marriner Eccles said that “this false notion”:

… that the affairs of a nation are like those of an individual. It just isnft true, and starting from that false premise you can get into all sorts of illogical thinking and reasoning about public affairs.

Yet, macroeconomics students around the world in mainstream programs are confronted with this analogy all the time. The Government Budget Constraint literature, which drives most of the mania about deficits and public debt ratio thresholds etc is based upon it.

Neoliberals claim that governments, like households, have to live within their means. They say budget deficits have to be repaid and this requires onerous future tax burdens, which force our children and their children to pay for our profligacy.

The false neoliberal analogy between national budgets and household budgets resonates strongly with voters because it attempts to relate the more amorphous finances of a government with our daily household finances.

We know that we cannot run up our household debt forever and that we have to tighten our belts when our credit cards are maxed out. We can borrow to enhance current spending, but eventually we have to sacrifice spending to pay the debts back.

We intuitively understand that we cannot indefinitely live beyond our means. Neoliberals draw an analogy between the two, because they know we will judge government deficits as reckless. But the government is not a big household. It can consistently spend more than its revenue because it creates the currency.

Whereas households have to save (spend less than they earn) to spend more in the future, governments can purchase whatever they like whenever there are goods and services for sale in the currency they issue.

Budget surpluses provide no greater capacity to governments to meet future needs, nor do budget deficits erode that capacity. Governments always have the capacity to spend in their own currencies.

Please read my 2011 article in The Nation – Beyond Austerity – for more discussion of this.

Marriner Eccles understood the difference clearly. He said (in 1938):

Isn’t it about time that we learned this simple truth? Is it so hard to understand that when an individual owes money he generally owes it to another individual, but when a nation owes money it owes it to itself? When an individual pays a debt, he pays it to someone else. When a nation pays a debt, it pays it to its own people.

Moreover, “we get into wholly misleading conceptions if we make the old mistake of confusing the matter of individual solvency with the solvency of the nation as a whole.”


… individual solvency depends upon continued income and living within that income. The nation’s solvency depends upon the productiveness of all of it speople. The individual cannot create money. The Government can and must as one of its fundamental sovereign functions.

Of-course, the conservatives (the brighter (sneakier) academic ones) retort that “we never said the government couldn’t spend as much as it liked” it is just that it will drive interest rates up and cause hyperinflation if it does.

Well, first, they do say the government can run out of money and they lie when they deny this. And once we get beyond that lie, their arguments about the consequences of government spending fail the reality test.

Marriner Eccles knew that too – in 1938.

First, he said it “isn’t the size of a current deficit or even the size of the national debt that is the true measure. Bather, the truer measure is the size of the national income.”

Conservatives are willing to allow real GDP to wallow well below potential for years and force millions of people into entrenched unemployment because they think there is something magical about a deficit number. Marriner Eccles knew the folly of that sort of reasoning.

He said that:

I think it is unfortunate to say the least to have public attentiona is led into becoming alarmed over the wrong things. I very much regret that responsible leaders, however conscientiously, nevertheless mistakenly create public alarm over the solvency of the nation or the soundness of its credit. This is just what they do when they call attention to one set of facts or figures without showing their relationship to other facts and figures. Isn’t it up to us to keep our eyes on the important things?

Shout it out!

Orval Adams also invoked the “debt burden for our grandchildren” argument. In criticising the New Deal deficits, which created work for millions and saved communities from poverty and destruction, he claimed that “we have added this additional debt load to the load already upon our shoulders and upon the shoulders of generations to come”.

Marriner Eccles noted that this reasoning ignored the increase in national income that came from the New Deal spending. Rather than undermine the saving of private citizens (a claim made by Adams), Eccles said that “the savings of our people, they are infinitely safer and more secure today than they were in 1935” because employment and national income was higher.

Orval Adams also rehearsed the crowding out argument by claiming that the Government had “monopolised the market for bank funds” and diverted them from productive use by private entrepreneurs.

Marriner Eccles noted by way of retort that:

… we have today the greatest present and prospective volume of excess reserves in the banking system that we have ever had in all history … Interest rates are at unprecedented low levels. Far from being a scarcity of funds, there is the greatest potential surplus we ever had. Thus funds are not being monopolised. The fact is that they are not even being used except as business and the Government put them to use. And if the Government were to step out of the picture, just what would become of the bunking system? The truth of the matter is that it would starve to death.

In the language of Modern Monetary Theory (MMT) he was noting that banks are not reserve constrained in their lending. If there are credit-worthy private borrowers then banks will lend because it is in this way that they profit.

The fact was that in the time he was writing private confidence was low and there was little private appetite for risk. So banks were dying because private investment was low.

The only thing that was keeping growth moving was the government spending. Eccles knew that “there is no justification for the assumption that if the Government stepped out that private business would provide adequate employment sufficient to use our human and material resources in a may that would at all satisfy the great masses of our people.”

In modern terminology the mainstream economists call this private resurgence – Ricardian Equivalence. Please read my blog – Pushing the fantasy barrow – for more discussion on this point.

Marriner Eccles knew that under the institutional arrangements of the day (with respect to public debt issuance and deficits):

Somebody has to borrow and spend money to put people to work. If private business is unable to do it adequately, then the Government has no choice but to step in and do what it can to provide at least a subsistence until such time as private business can make adequate provision.

The conservative in his was talking here about “minimum” levels of intervention. The point is that the government should fill the output gap and ensure there is minimal loss of employment when the private levels of spending collapse.


The rest of the Speech is fascinating. And remember when it was written. While the current downturn has not been as severe in the US or most advanced nations as the Great Depression, the loss of output has been very significant.

Some nations are in conditions equivalent to the Great Depression – for example, Greece, Spain etc.

And it is all unnecessary. It is because the mainstream debate has called “attention to one set of facts or figures without showing their relationship to other facts and figures”.

The figures that matter are – lost income, lost jobs, rising unemployment, rising underemployment, increased poverty rates. As Marriner Eccles said: “Isn’t it up to us to keep our eyes on the important things”.

That is enough for today!

(c) Copyright 2013 Bill Mitchell. All Rights Reserved.

This Post Has 12 Comments

  1. But did HC “Nugget” Coombs say similar things to Eccles?

    I did a search over a year ago now and found very little on Coombs other than an interview where he appeared very modest and affable.

  2. There is a possible solution to the problem which Bill accurately describes, which is for MMTers to have a campaign advocating the total abolition of national debt. Warren Mosler advocated this, as did Milton Friedman. I.e. they both argued that government should issue only one liability: money. That is governments, should not issue any interest paying debt. I agree with them.

    For Warren, see his second last paragraph here:

    The economically illiterate economics correspondents employed by newspapers, plus neo-liberals, plus advocates of expansionary consolidation and similar forms of low life would jump up and down with excitement at the idea that the debt can easily be disposed of.

    Basically national debts can be wiped out by a massive QE operation combined with a bit of a tax increase to counteract any excessive stimulatory effect coming from the above QE. (Although doing it all in one or two years might be too disruptive.)

    The above mentioned Neanderthal brained worshipers of austerity would of course scratch around for another excuse for being austere: they’d point to the inflationary risk of the expanded money supply. But our answer would be to point to the non-existent inflationary effect of QE to date.

    At least that would rattle their cage.

  3. Great blog Bill. For any twitter users out there, Stephanie Kelton (@deficitowl) has a recent tweet (29-Jul-2013) with a link to Eccles speech. It is an excellent read and so relevant for today – highly recommended.

  4. Since you are a professor I am sure that the majority of the people that you meet are intelligent and fairly well educated. But, those aren’t the people I meet. You say people haven’t read Marx, but most of people that I meet have no idea who Marx is or that he is associated with socialism. In fact, they don’t know what socialism is, they just know that it is bad. As Bill Wolman said about the Feb, “most people think the Federal Reserve is a ten year old brand of whisky.” I would be willing to bet that more people around here know about the Fed than know about Marx. Even people on Social Security don’t like socialism. Go figure.
    And, as far as Eccles, once these Southern Baptist found out that he was a Mormon they would never believe a word he has said. No, there is nothing new under this ten thousand year old sun.

  5. Dear Bill

    If Peter owes 10,000 to Paul, Peter knows that he has a liability of 10,000 and Paul knows that he has an asset of 10,000. If the government sells a bond of 10,000 to Patrick, then Patrick sees that amount as part of his net worth, but who subtracts that 10,000 from his/her net worth? Nobody. I have never met a person who subtracted his per capita share of public government debt from his net worth, even though public government debt is of course a liability of the taxpayers. That makes the public debt of a government different from private debt. Psychologically, it is an asset without a liability, unless you believe in Ricardian equivalence.

    The implication of the above is that government debt can have a positive wealth effect and reduction of government debt must have a negative wealth effect.

    Regards. James

  6. James Schipper,

    Quite right. That’s why MMTers refer to the sum total of monetary base plus government debt as “private sector net financial assets”.

  7. I have a clear memory from a 3rd year Economics class in the 1980-81 school year. There was a break in the lecture, and the prof was leaning by the window joking with the students. He said “You guys are so lucky, you will never have to live through another Depression. Nobody will ever be so stupid that they will make those same mistakes again!”, and laughed. That memory has stuck with me 32 years, as I sit in shock and watch them make the same mistakes again.

  8. Great piece Bill! In your opinion, will there ever be a resurgence in U.S. manufacturing that would again create large numbers of family wage jobs or is that a pipe dream?

  9. Bill, thanks for the excellent piece (as always). I was wondering if you could address notions that austerity policies actually help the environment due to less output and therefore less pollution, global warming, etc.

  10. I was posting a link to Marriner Stoddard Eccles testimony to the Senate Finance Committee in 1933 a couple of years ago on various blogs (including this one) and also used the phrase ‘there is nothing new under the sun’. Not looking for attribution or anything. But, the internet really is a wonderful thing. I can’t remember where I was first pointed to this (probably an MMTer).

    Anyway, if you read that testimony you will truly see that there is nothing new. Comments by Republican Senators could have been cut and pasted into the mouths of typical GOPers in 2009 and 2010 (and today too I expect, although I’ve stopped reading them).

    The Wikipedia entry on Eccles is interesting as well. He was hardly a wild-eyed socialist. A Mormon, and a successful banker at a very young age. He didn’t get his ideas from FDR although he was later Roosevelt’s Fed Chairman. He was just a smart guy. By the way the building that houses the Federal Reserve Bank today, is the Eccles Building.

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