This week, we discuss the fascinating chronicles of monetary evolution with Dr. Dror Goldberg, an economics scholar from the Open University of Israel. From the captivating myth of Yap stone money and its striking similarities to Bitcoin. We dive deep into the economic journey of the Massachusetts colonies in the 17th century.
The 17th century Massachusetts, a bustling trade center marked by Puritan settlers and their innovative financial ideas, sets the stage for our discussion. We dissect its unique economic landscape, its connections with the Caribbean, and the unfolding of a monumental economic innovation - the advent of paper money. The intricacies of its inception and the critical role played by the Puritans.
Fast-forward to the modern era, we unearth the origins of the Federal Open Market Committee, tying its genesis to the intricate checks and balances of the American Puritan system. We also probe the complex relationship between legal tender laws and the utilization of money. As we round off our conversation, we delve into the evolution of money from primitive seashells to modern digital payments. We touch upon Israel's financial independence journey in 1948 and explore Massachusetts' paper money reliance on being legal tender for taxes.
Check out Dr. Goldberg's Website
On X (Twitter): @DrorGoldberg
This week, we discuss the fascinating chronicles of monetary evolution with Dr. Dror Goldberg, an economics scholar from the Open University of Israel. From the captivating myth of Yap stone money and its striking similarities to Bitcoin. We dive deep into the economic journey of the Massachusetts colonies in the 17th century.
The 17th century Massachusetts, a bustling trade center marked by Puritan settlers and their innovative financial ideas, sets the stage for our discussion. We dissect its unique economic landscape, its connections with the Caribbean, and the unfolding of a monumental economic innovation - the advent of paper money. The intricacies of its inception and the critical role played by the Puritans.
Fast-forward to the modern era, we unearth the origins of the Federal Open Market Committee, tying its genesis to the intricate checks and balances of the American Puritan system. We also probe the complex relationship between legal tender laws and the utilization of money. As we round off our conversation, we delve into the evolution of money from primitive seashells to modern digital payments. We touch upon Israel's financial independence journey in 1948 and explore Massachusetts' paper money reliance on being legal tender for taxes.
Check out Dr. Goldberg's Website
On X (Twitter): @DrorGoldberg
Hi everyone, welcome back. Today we are speaking with Dr Dror Goldberg. He is a senior faculty member in the Department of Management and Economics Open University the of Israel. He holds a Ph. D. in economics from the University of Rochester and a law degree from Tel Aviv University. Drawer studies the theory, history, law of money, especially legal tender. I had a really enjoyable time discussing his new book Easy Money, american Puritans and the invention of modern currency. I hope you enjoy my conversation with Dr Goldberg. So I want to ask about a paper you wrote not too long ago. I want to ask what was not of Friedman wrong about when he discussed the Yapese stone money.
Dror:So there was this myth of the stone money, of Fiat huge stone wheels, and economists have been a bit too lazy about it. They just kept citing the same sources without getting into the original book of the original. Anthropologist visited the island and the myth was that these stone monies were just stone wheels. They had no useful purpose and they just circulated in the economy freely, simply because people believed in them. So when economists tell the story, they say there's no intrinsic value for these stones and implicitly, there are no laws that have anything to do with the circulation of the money. Well, today we can say like Bitcoin.
Dror:I wrote the paper before there was Bitcoin. But it's kind of like Bitcoin. Just it is accepted because people believe it will be accepted, with no intrinsic value, with no legal support, and to me it seemed too amazing to be true. So I went to the original anthropological reports and I realized that actually it did have some intrinsic value for these people. They didn't have precious metals, they didn't have anything very attractive somewhere in the Pacific Ocean. So these semi quartz stones from another island 200 miles away seemed very attractive to them and obviously they had laws. They didn't have the own method of writing. That doesn't mean that they didn't have laws. They definitely had laws mandating the payment of these stones in various payments. So actually it's not what it seems to be. So, yes, the money is circulated, but it did have some intrinsic value and it did have some legal support. So it's nothing like Bitcoin. It's just kind of a boring money as we all knew it throughout human history, only with an exotic shape and size. That's all.
Rasheed :I also learned about that same Japanese stone money also I think maybe not from a Freeman but from other economists also take story and they use it as an example of ultimate free market fiat money. They use that terminology. So you wrote a lot about the origins of the first real fiat money in this sense in your new book. But I want for you to give some more context to the world of which the Massachusetts colonies existed in before we actually dive into it, given that it wasn't the same world we think of as now. Let me think of this colony in the America, kind of early American money. It was a very different conceptualization of where things stood. So could we ever give some context for what the historical context was for the Massachusetts in 1690?
Dror:Massachusetts was a small colony, 50,000 people. It was maybe the second largest colony in English America. Virginia was older and more populous. It wasn't the main part of the first English empire. The Caribbean islands were much more important because of sugar. Virginia was also important To England. Massachusetts was not very important. It was a trade center of English America but back then, just like in the Middle Ages, traders and merchants were not considered very important. They were not considered as if they had any economic significance. So England didn't think Massachusetts was very important. It didn't have a very important staple products of its own. It's just mostly intermediated in the Atlantic trade.
Dror:It was a colony populated by Puritans, refugees from England for religious reasons. They left everything behind. They were kind of renegades. They wanted to have as much autonomy from England as they could get. They started as a commercial corporation, just like Virginia and Bermuda. But right before the climax of the story 1690, they lost the charter. At that point in time they were negotiated for a new charter. So they were kind of half autonomous, maybe I could say, not strictly part of England, but definitely not outside of it. They were very ambiguous about their relationship to England. So that's kind of the context.
Dror:They had still many Native American neighbors, canada, to the North. They just started their first war with Canada after many years of peaceful coexistence and they should say in the Caribbean context that they had very close relations to the Caribbean. They sent their settlers and ministers, puritan ministers who just graduated from Harvard College, the only college in English America. Some of them went to the Caribbean and many trade relations. Sugar from the Caribbean slave colonies was perhaps the most important product that Massachusetts merchants handled. They took their boring provisions like horses and cattle and the grains, shipped them to the Caribbean, exchanged it all for sugar, took the sugar to England, both manufactured goods and brought those back to New England to spread throughout continental English America. So they were very reliant on the Caribbean colonies. They did not have many slaves in Massachusetts but they totally relied on slave labor indirectly in that way.
Rasheed :What was the reason for the charter disputes of the masters colony in England? That was, I say, this kind of nebulous state for a few years.
Dror:It started as a normal commercial company and then the Massachusetts Bay Company abused the charter. They relocated to Massachusetts, which wasn't part of the plan no corporation has ever done that and they became de facto refuge for Puritans and the English King was not happy with that. And later they became more and more distant from English control, especially after the civil wars started in England. The climax was that they even opened the mint while England was not a monarchy. So for 11 years England was not a monarchy, it was a republic, then a protectorship under a corwell. After King Charles I was executed and in that time Massachusetts opened the mint. It was the only colony to do so. It also carried the time. Apparently England didn't care.
Dror:But after the restoration of monarchy in 1660, that became a serious diplomatic problem Because in the English Empire only the king was allowed to issue coins, and here you had this renegade colony issuing its own coins. So there was some conflict about that. It was used not really as the real reason, but it was a very powerful excuse to cancel the Massachusetts Charter. The real reason was that King Charles II, the new king, wanted to cancel all the charters that were controlled by his Puritan enemies. In the 1680s. He did the same with the Bermuda. He did the same with the city of London.
Dror:The rest was part of the same trend. But for Massachusetts, the number one excuse listed in all of the accusations was that they operated the mint without approval. So they lost the charter in 1684. And in 1686, they received the new government, actually a pure dictatorship, with the governor appointed by England, and that governor was deposed in 1689, right after the Puritans heard about the Glorious Revolution which deposed the English king, james II. So at that point they asked to have the charter again, the old charter, or alternatively, receive the new charter. So there were these ambiguous constitutional situations and they wanted to be very, very friendly towards England at that particular point in time.
Rasheed :Is there anything particularly interesting or unusual that you can tell me, Besides what you mentioned earlier the relationship between the America's colonies and the Caribbean in terms of trade?
Dror:As I said, massachusetts didn't really have anything to export to England. They had the same weather and they were very, very far away. It didn't pay off to grow wheat in Massachusetts and ship it to England. So what they found was an indirect way of exporting to England, and the intermediary was the Caribbean islands, mostly Barbados. So they sent their livestock and grains to Barbados to feed the population there. In Barbados they used every square meter of land. They had to grow sugar, apparently, that's what I'm told by the sources. So they exchanged all the food products for sugar and then they exported the sugar to England. So they totally relied on the Caribbean. They didn't really have any way to support the economy without the Caribbean islands. They would have been completely useless and hopeless. So that was critical for their survival.
Rasheed :I had to write it somewhere. I don't know if it's true, but I had to write somewhere that one important route also that at the time to get Spanish money into the Americas colonies would be Friday, caribbean Friday Spanish money coming into the Caribbean and then being sent, or treated or stolen as sent into the Americas colonies. Is there any truth to that story?
Dror:Yes, from the 1650s Jamaica was under English control. It used to be Spanish but was occupied by England and that was the major place for pirates or privateers, if they were authorized, and very often Massachusetts merchants went there again, agricultural products for coin. All pirates from Jamaica went to New England, paid a visit and used a stolen coin to buy whatever they needed to put in the ships. Otherwise they didn't have any other sources of food for the duration of the travels. So Jamaica was also very important. So I would say Barbados for a normal trade and Jamaica for stolen Spanish coins.
Rasheed :Okay, so now, the Puritans were also a very key part of the story told in the book. I wonder why were Puritans so different from most immigrants in the Americas colonies?
Dror:Well, the reason is the reason that they immigrated. They immigrated for religious reasons. Now you had, in the other colonies, obviously you had the slaves who did not come voluntarily. You had very few people moderately wealthy, but most people came to England as poor people. They just looked for an opportunity to make a living. So most of these people, almost by definition, they were not educated. They didn't have anything like the middle class in England in terms of demand for luxuries, education, anything like that, experiencing a government. Most of the people who came to, let's say, virginia, they didn't have any of that In New England, within 10 years, more than 10,000 immigrants and they came for religious reasons only.
Dror:So this meant that, sure, some of them were poor, some of them were uneducated, but a very large portion, relative to other colonies, were educated and they had experience in trade, in politics and they're just people at a different level, simply because the reason for immigration was not economic. So that made them different and that's about it. I mean. Within a decade they founded Harvard College. It's quite amazing. I don't think there has ever been an immigrant society to start its own college within 10 years. It's quite amazing. And some of the immigrants included significant merchants from London and other parts of England. So they immediately in some sense were ahead of other colonies, and that made them different.
Rasheed :This particular invention in history, the first real paper money. Yes, the Puritans are different, but it still seems quite surprising. This would happen in Massachusetts, of all places, but what was so special about that particular colony at that particular time?
Dror:So various issues. As an economist, I found it useful to talk about demand and supply. In terms of demand, they had high demand relative to other colonies, high demand for a new type of money. And why is that? Because all the colonies had a problem that they didn't have enough proper coin, enough English coin. Why is that? To take it one step back, they exported whatever they could to England. Let's say, in Virginia they exported all their tobacco. But the planters, the slave owners, they wanted even more European manufacturers. So on top of the tobacco they also paid with whatever coins they had to get European manufacturers because nothing could be produced in the colonies, things like pencils and guns and paper and glass and beds and chairs. They had nothing that they could produce there. So they didn't have enough coin left for domestic circulation.
Dror:Now in Virginia, and same in Barbados, it wasn't a huge problem because the economy didn't really need coin on a regular basis. They had slaves. Slaves were, tragically, not paid at all. In New England, on the contrary, they didn't have any slaves, they didn't have many servants, they had a lot of people who were regularly paid, they received wages. So in Massachusetts, even if they had the same shortage of coins as in Barbados, the demand for money was much, much larger because people needed coins all the time. In the slave colonies that was not the case. So Massachusetts needed money more than other colonies because it was sort of like a normal commercialized economy like England, was very much like England in that sense, and they also had what I would call a higher supply of people who could come up with ideas about money. So they didn't have just these poor illiterate immigrants who were homeless in London. They had ministers who studied in college about history. They read Aristotle and Plato, who had very interesting things to say about money. They read Thomas Hobbes, who actually wrote the circulation of money is the treasury, treasury of the state that receives coins and expands them, the treasury, not the mint. Thomas Hobbes the contemporary wrote about that in his famous book Levioson. So these ministers, they actually read these things at Harvard College and the Trade Center of English America.
Dror:They had many merchants, and I'm talking about dozens of them. I counted. They had dozens of merchants at every point in time, whereas in other colonies a handful, not a lot. In Massachusetts, especially in Boston, you had dozens. And these people, well, they were traders. They were like the financiers, the lenders. Imagine Wall Street in Boston. It was the Trade Center, the Financial Center. I can also say it was almost the banking center, because they had some bank projects. They failed to get off the ground but they tried them in Boston. So people there had the capacity to come up with ideas about money, both practical people, the merchants and the intellectuals at Harvard, and that was a combination that no other colony even came close to. So they had both high demand for better forms of money throughout the 17th century, not just in the 1690s, and they also had this high capacity of people who could come up with new ideas about money.
Rasheed :So now, could you tell us, then, the story of how the final orientation of paper money really came about? As you mentioned, the first way was very limited use of paper money and then, only after the charter was renewed, then it had a more unlimited use of paper money. So why was there a more limited version of Disney first instance?
Dror:The point of time that they needed to issue paper money. That was 1690,. They had to pay money to soldiers who came back from the first invasion of Canada, now invading Canada Quebec City to be specific. It took them a lot of time to travel back and forth. Three months. That translates into a large payment. Three months wages, 2000 soldiers and sailors. That was a huge amount of money and they didn't have anything to pay with. They actually relied on succeeding and plundering Quebec City and using the plunder to pay. But they failed. So they had nothing. They had no backup plan, so they had to issue money quickly. The soldiers were mutinous.
Dror:The problem was, at that point in time there was still awaiting England's decision what to do with the charter. If they had tried to issue proper money, either coin or paper, they could have provoked anger from England just a few years earlier. Six years earlier, they lost their charter and, as I said, the independent print was one of the main excuses for violating sorry for voiding the charter. They couldn't afford repeating that mistake again. So what they did? They issued paper money that didn't seem like paper money. They didn't call it money. They didn't force anyone whatsoever to accept it, except for the government itself. So they said we will accept it for taxes and that's it. You're the whatever you want with it. And soldiers most of them, I suppose chose to receive that money. It was better than nothing. And they went shopping with it and initially it wasn't very smooth. But initially some sellers received it. Some sellers were reluctant. Eventually, apparently, most sellers received it, knowing that they could use it to pay the taxes. And that's how it circulated. So that was 1690.
Dror:At the end of 1691, they finally received a new charter and as soon as the charter physically arrived to the colony in 1692, they realized well, we don't have to be nice to England again. We have the new charter. So let's make the money more normal. With the legal status that our former coins had. That meant legal tender not only for taxes but also for every ordinary debt. So if two parties to a contract had a dispute, how can you discharge a debt? Now, if you tender the paper money of the colony, that was good enough to discharge the debt. That's what legal tender means. So right after receiving the charter, they made it legal tender for debts, private debts, not just for taxes, and that's what we have today, since gold was eliminated from the monetary system of the world in 1971, all we have is legal tender for taxes and debts.
Rasheed :Why wasn't they worried that the charter could again be repealed after they started to do this more or less outrageous monetary financing?
Dror:That's a great question. In the first charter the original charter from 1629, there was no mechanism of what to do if they violated the charter. So when they did violate the charter and minted their own coins, the mechanism was pretty brutal. The king was angry and they voided the charter. In the second charter, england did not want such a situation to happen again, so they put a mechanism to prevent such drastic measures and the mechanism was every law of the colony had to be sent to England for approval and England had three years to veto it. And if it vetoed it, fine. So the law is out and no need to be angry and that's it. So this was kind of an insurance mechanism. They could peacefully and quietly upgrade the money to be a proper legal tender for debts and not worry about it. And if the king didn't like it he could veto it. But there was no harm in trying. So that's a very important point.
Rasheed :One of the other things you mentioned that I've come as is invented around. The same time was the day of the open market committee, and that was a very surprising point you made. Could you explain how this came about?
Dror:So Massachusetts, again, it was a commercial company and in the charter it received a structure of a commercial company. There were some people that's called them directors and the CEO and the general meeting of shareholders. And when they relocated to America and became semi autonomous, that was transformed into a constitutional structure of colony and it wasn't appropriate. They didn't have a bureaucracy like what we would call today a normal country. There was not even a treasury. It was a treasurer and he employed constables to collect taxes. There was no bureaucracy of any type, just some office holders.
Dror:So what they did to stay with the limits of the commercial charter, they used committees to do everything. And there were hundreds of committees, I counted them all and they used them for almost everything. So when they needed to issue paper money the very large quantity they used the committee. That was the normal thing to do. Three people, five people, both because of the workload, to manually sign every bill that they issued, not with the copy like you do today, but manually sign every bill and also prevent counterfeiting and also to make the right decisions. So they knew that if they printed too much money, there could be inflation. If they printed money in too high denominations, people will not be able to use it. So they had to make some serious decisions. So they resolved on having five people in the committee, which was entirely standard in the context of other committees, and they had two people from the executive, including the treasurer, one person from the legislature and two private citizens. So that was the committee. And to people who lived back then there was nothing surprising about this committee, because that's how the typical committee was structured you had people from the executive, legislature and, in case they needed them, experts from the private sector. That was normal.
Dror:Now the surprising thing is that the current committee that controls monetary policy in the US has the same structure. It has members appointed by the executive, confirmed by the Senate, and some other members five out of 12, were appointed by the Federal Reserve Banks, the private component of the Federal Reserve System. To me that was very surprising. I'm sure it was surprising to you, as you said, and I even think I have an explanation of why. Do we have this history repeating itself?
Dror:And my explanation is not about money. It's about the American constitutional DNA as I see it as a foreign law, and what I see in the American constitution is a very delicate structure of checks and balances, not just between the executive legislature and the judicial branch, but also between executive legislature and private sector. So in the US, in complete contrast to my country, you have people serving as jury, voting for judges, for DAs, for sheriffs, and people have the right to bear arms to preserve the constitution against dictatorships. That's something totally different from my old world, simple democracy, where I go to vote every four years. And that's it, these checks and balances, that give an important, not a decisive role, but an important role to the private sector. I think that's why you have the federal open market committee today and that's why you had this committee in 1690, massachusetts, and that's a successful way of doing American politics.
Dror:And the creation of the FOMC in the Great Depression was, I suppose, technically an independent invention. They did not say, well, let's do it like Massachusetts 300 years ago or 200 years ago. There's no chance that they consciously imitated it. It's just part of the American system, which had been in place long before the American formal constitution that we are all familiar with. That was a tradition long before American independence. So that's my explanation.
Rasheed :So legal tender you discuss a lot in your book. Is it really a necessary condition? Because right now this is obviously hundreds of years later but right now there are some countries that do not have legal tender laws and in most cases we don't really interact with legal tender. Now we interact with, obviously, bat deposits, money in these days, but back then was it a necessary condition for the pair of money to be more prominently used for it to have legal tender status?
Dror:I focus on legal tender for Texas. I think that's the critical part and it's not necessary. I mean, if you have a gold coin, you don't have to give it an illegal status. But given that the money doesn't have intrinsic value like a gold coin and given that there is no credible promise of convertibility into gold, then probably you need to have something, and the best candidate for that something in modern times we have a strong state, a strong nation state with a very high rates of taxation is the legal tender for Texas.
Dror:The way I came up with the idea I have to confess I read it in Adam Smith later I first came up with it by asking my father. So I grew up with 450% inflation almost hyperinflation in Israel in the 1980s, and when I consider the question of why people accept money that is no longer related to gold, I realized that, let's say, in the US, why do people accept it? Because it works. Nobody cares about the legal status of dollars. Because you already know when you grow up there, your mom gives you a $1 bill and tells you go and buy candy. You buy candy, you see the seller accepts it. Great, and you also think that this is accepted. So when you go to work at McDonald's as a teenager and somebody offers you a dollar bills as payment, you say, okay, it works. I know it has always worked.
Dror:The puzzle, I thought, was in periods of high inflation. So I asked my dad we had triple digit inflation, why did you accept the local currency? Why didn't you accept only dollars, as many did in the underground economy? And he said well, I couldn't pay taxes with that and that's where it binds. I don't claim that whenever we decide to accept dollars in the US as a salary or in the shop, if we are sellers, I do not claim that we seek about legal tender for taxes. What I do claim is that if there are conditions that would make us abandon the local money, like in Argentina and Turkey today, the thing that will hold us back and keep us tied to the local money, that's legal tender for taxes.
Dror:I would like to say something even more extreme. The reason why we have 100% in Argentina and Turkey is because of legal tender for taxes. If you didn't have that, the government would accept whatever you offered. People would have abandoned the local currency at 20%, meaning the price level would have jumped from 20% to infinity, meaning people would not accept this money at all Price level. Infinity means that the money has no value. No matter how much you offer, people don't want it. So inflation rate would have increased, let's say gradually to 10%, 20%, then to infinity. So the reason why you can have 100% is because of legal tender. That's why people still cling to it. That's why the money is still accepted at all. Otherwise it would have been infinity inflation and the money would have been abandoned completely.
Rasheed :That's my argument. You made a few references to the French Canadian card money or the French regime card money. I have never heard this before. Could you give an explanation of why this came about, in French-Canadian say, a monetary environment?
Dror:The circumstances of Massachusetts in 1690 were not seeing new the situation where a government didn't have money to pay its soldiers. That happened countless of times in the early modern period and before it happened five years earlier in Quebec itself, the same place they tried to occupy in 1690. In 1685, quebec received many soldiers from France to defend against Native Americans who were suspected of rotting to attack Quebec. So many soldiers came from France but France did not send enough coins and the local governor had to pay the soldiers and he didn't have anything. So what he did? He took a blank card the one made from cardboard, the backside was blank so he could write a money, and he cut it in various shapes and he wrote on the backside the nominations and the signature and the stamp and turned it into paper money. Now, that was a local innovation. That was the first paper money in North America, but it was not different from several presidents in Europe. So we have cases from the Middle Ages, in the 16th century, even in the Netherlands and even in Brazil, when the Dutch controlled it. There was a precedent in the 1640s. In all these cases some local governor ran out of coins so he produced in some way some paper money or something similar to it and printed something on it and told the soldiers to receive it as money and they used it to buy their food and lodging, maybe until the emergency was over and the governor forced everyone to accept this money because we are talking about military emergencies and right after the emergency if they survive, they redeemed it with normal coins from gold or silver. So the Canadian card money of 1685 was indeed the first paper money in North America, but it was copied from many presidents from the rest of the world.
Dror:The Massachusetts innovation was to have paper money which relied only on its legal tender status, not on forced acceptance and not on the promise of convertibility into gold or silver. So that's the relation I see between the two inventions. And the Canadian money actually gave Massachusetts the idea of issuing paper money. We know that Massachusetts knew about it. We have some evidence in writing to local leaders. Right after the Massachusetts paper money was issued they said well, the Canadians have paper money, but because of the political reasons, because of the situation with England, they waited for the new charter. They couldn't simply use the Canadian device and force the paper money on everyone. They couldn't even call it money, they called it bills. So that's how I see the proper context of the Canadian money.
Rasheed :I'm going to conclude now. Before I conclude, I know that every time there is a conversation about broadly called it fiat, fiat currency, fiat money especially now, a lot of people who are in the cap was now called MMT. Our very big proponent of this is fiat money. We have no problems printing more money, issuing more debt, do more deficit financing. I think you're now a huge fan of MMT, but I'm wondering what do you find is the core attraction of people who support MMT? What do they get most wrong, in your opinion, about the subject?
Dror:I come from mainstream economics and most mainstream economies think that MMT is just wrong. My point of view is different. Mmt is not wrong. It starts correctly and from that point it's dangerous. What do I mean by that? The starting point of MMT is that modern money and that's their terminology. Mmt initially stood for modern money theory, not modern monetary theory. Modern money, meaning money post 1971, money that is not related to gold circulates because of taxes. That's exactly my point. Earlier in my career I actually corresponded with some MMT people. I didn't really worry about what they did with this theory After that point, after talking about the mechanism of how taxes support the circulation of money, I didn't really care.
Dror:I was interested in my little theory of money and taxes. There I totally agree with them. Now my conclusion is there's a huge temptation to print too much because taxpayers, as long as there are honest people who still pay taxes, like my father 40 years ago, they will keep accepting the money, no matter how much the government abuses it, no matter the inflation rate, they will still keep accepting money because they have to pay taxes. My point is watch out. We have a huge temptation for the government to abuse the system and print too much. That's why we do all these things that mainstream economics wants, like an independent central bank free from political pressure. Mmt conclusion from the importance of legal tender is quite the opposite. It's like yes, we have this free lunch, we can print as much as we want. Those taxpayers pardon my language, those suckers will still have to accept it, no matter how much reprint. So let's party. So their conclusion is completely opposite and that's why I say their premise is correct. I totally agree with it. I dedicated my career to this initial point about money in Texas and from then on they're dangerous. They are not completely wrong like many mainstream economists say. They are correct. And then they are dangerous. And the notion of free money it's very tempting and I can see why many people fall for that and I mean that's a problem.
Dror:I think now, after the Corona stimulus checks, people look at inflation differently. In her best-selling book, stephanie Kelton actually devoted only one page to even explain why inflation is bad. Just one page. We had our disasters like Germany and Zimbabwe and we don't want to get there, but only one page she explains why sometimes wages don't go up immediately after prices. So that's kind of bad One page. She published that in 2020. In 2023, we all know what's wrong about inflation. Why is it bad? For people in America who haven't seen inflation for 40 years, that's a very valuable lesson. Now they know what inflation means, and it didn't even go beyond 10%. So now I see American voters, especially younger generations, will be far more careful about any politician who promises them yeah, we're going to print money and it will be okay. I see people will be much more risk averse about anyone who says let's print. So I think things look differently now.
Rasheed :You studied a very key monetary invention in history. I'm curious so now we have electronic money is the dominant form of money and it's kind of stabilized here. Do you think it's essentially the end of history for money or do you think something could actually come that would change our monetary invention in a way that would be actually new and novel in terms of how we've been using money in the past?
Dror:I would like to separate the question into two aspects technological and legal. Money always follows technology. The first money was probably seashaws, seashaw jewelry, seashaw beads. It was found in graves in the old world and in societies that Europeans, what on quote? Discovered in the last few centuries. Almost everywhere they found people using seashaw beads as money. So that was the first money. Then in the old world people learned how to process metals, so that became money. They learned how to stamp metals. Then came coins, paper, so you have paper money. Internet computers, so now you have digital money.
Dror:So technology will always change money. Just last month I came across this new type of payment that you don't even swipe your phone but just your hand. You give some application, they kind of scan your hand and now they have your hand. You swipe your hand and that's it. I suppose in the future it would be maybe direct from our brains. You won't even have to wave your hand at something. So technology will change money and it's hard to imagine how far more it can go other than directly from your brain.
Dror:In terms of the law, I don't see a major change this importance of legal tender, as long as you have the strong nation state, not just a nation state, but the welfare state. So Massachusetts was one of the earlier fiscal military states that sometimes needed to raise a very large military force not always, but sometimes and in the 20th century this transitioned into the welfare state. So as long as you have a government that collects dozens of percent of GDP as taxes, there is still going to be some importance for whatever is the legal tender for taxes. So I think that's why stable coins that are pegged to the dollar are far more useful than Bitcoin, and obviously the same will be true for the central bank digital currency that many talk about now. The point of legal tender for taxes is not going away anytime soon, so technological form it takes.
Rasheed :So final question what are you working on now? That's a good question.
Dror:Actually, I relocated to Israel when I started this project, so I became more provincial and I've been busy with Israeli money, specifically with how Israel financed its wealth independence in 1948. And I found some interesting things which I think are also important for monetary history at large. I think that's as interesting as the invention of modern currency. Obviously there's nothing bigger than that. At least that's what I thought 10 years ago, but there's still some interesting things.
Dror:As an Israeli who reads the local language, I have a comparative advantage. Maybe I could say I think you referred to it before when we talked off record. You can put it in the podcast if you want. I mean I'm saying it only because you mentioned it. Why did the Massachusetts paper money needed me, an Israeli economist, to write a book about it? So many historians know about this money historians of colonial America, historians of money but nobody devoted a book to this money. American historians they realized immediately it was the first English-American paper money. If you talk about the future United States, as I say in the book, antigua had paper money before that, convertible into tobacco, english Antigua. But if you talk about the colonies which became the US, massachusetts was the first and the other colonies imitated it. So that's what American historians cared about.
Dror:I'm not an American. I began my career as an economic theorist and I studied law, and what I saw in the Massachusetts paper money was not the first American paper money. I didn't care about that, it doesn't do it for me. What I saw there was the first paper money that relied only on being legal tender for taxes, just like our money. So I came from the point of view of monetary theory and law, and that was my jaw-dropping moment. That's when I realized, wow, this was something big and nobody realized it until now. And 10, 15 years later you have the book. That's why nobody wrote a book about it before, and I think it was worthy of a book.
Rasheed :That's my story. Dr Goldberg, this has been a delightful conversation. Thank you very much.