Tuesday, May 23, 2017

Comparing conclusions

From Time magazine, December 31, 1965
If the nation has economic problems, they are the problems of high employment, high growth and high hopes. As the U.S. enters what shapes up as the sixth straight year of expansion, its economic strategists confess rather cheerily that they have just about reached the outer limits of economic knowledge. They have proved that they can prod, goad and inspire a rich and free nation to climb to nearly full employment and unprecedented prosperity. The job of maintaining expansion without inflation will require not only their present skills but new ones as well. Perhaps the U.S. needs another, more modern Keynes to grapple with the growing pains, a specialist in keeping economies at a healthy high. But even if he comes along, he will have to build on what he learned from John Maynard Keynes.
From the Federal Reserve Bank of St. Louis Review, November/December 1998:
I am sure rigorous economic research of the kind Homer Jones advocated, directed, promoted, and carried out will be essential to developing and adopting policies to raise productivity growth and achieve such a goal. We need a new Homer Jones to help us find policies for economic growth just as we were lucky to have had the original Homer Jones to help us find policies for economic stability.

Monday, May 22, 2017

"More saving means more investment..."

John B. Taylor:
Simply running a budget surplus would help achieve the productivity growth goal. Why? Because by running a budget surplus, the federal government can add saving to the economy rather than subtract saving from the economy. More saving means more investment...
John M. Keynes:
Those who think in this way are ... are fallaciously supposing that there is a nexus which unites decisions to abstain from present consumption with decisions to provide for future consumption; whereas the motives which determine the latter are not linked in any simple way with the motives which determine the former.

Sunday, May 21, 2017

Maybe I've been going about this all wrong

John Taylor explains a graph:

The trend line in Figure 1 shows where the economy is going in the longer term...
On the right is where we have been recently. On the left is where we were before.

It's like the commercial on TV that says "6 is greater than 1". Do people really need to be told such things?

Friday, May 19, 2017


A list of economic cycles:

Source: Wikipedia


Off the top of my head, four cycles that didn't make the list:

   •  Short financial cycle (Borio) 16-20 years
   •  Long financial cycle (Greenspan) once-in-a-century
   •  Price waves (D.H. Fisher) 150-300 years, give or take
   •  Cycle of Civilization (Arthurian) 2000 years, give or take


Wikipedia's list indicates a "technological basis" for the Kondratieff wave.  Note, however, that Kondratieff found his cycle in prices [and interest rates]. Also, the Juglar cycle is referenced to "fixed investment". But as Yoshihisa points out in the IWATA PDF, "Conventionally, “Juglar Cycle” is attributed to the investment cycle. But his logic is mainly credit and speculation." So at least two of the four cycles listed have a monetary or financial basis. Plus all four of the ones I added to the list.


Eight cycles listed, total off the top of my head. Six of the eight are observed in or driven by or closely related to money or credit or finance. And that's just off the top of my head.

Thursday, May 18, 2017

The road not taken

"Professor Commons, who has been one of the first to recognise the nature of the economic transition amidst the early stages of which we are now living, distinguishes three epochs," Keynes wrote in 1925, "three economic orders, upon the third of which we are entering."

The three epochs identified by Professor Commons are the Era of Scarcity, the Era of Abundance, and the Era of Stabilization. The change from the second epoch to the third, according to Keynes, is the source of some troubles.

Robert Skidelsky writes:

The classical economists of the nineteenth century looked forward to what they called a “stationary state,” when, in the words of John Stuart Mill, the life of “struggling to get on…trampling, crushing, elbowing, and treading on each other’s heels” would no longer be needed.

According to Skidelsky, the classical economists of the nineteenth century thought with Professor Commons that the world would move from abundance to stabilization. Skidelsky brings this up to make the point that secular stagnation (as described by Larry Summers) *IS* the stabilization, and we should get used to it: "one should view secular stagnation as an opportunity rather than a threat", Skidelsky says.

I say one should have doubts about any era of stabilization. The economy moves in waves and cycles. Growth follows recession follows growth. Why would this suddenly stop? Why would the economy suddenly "stabilize"? One day general equilibrium is unachievable, and the next day it is thrust upon us -- stable general equilibrium, no less. Hogwash.

It is unrealistic to think the world will stabilize. It is beyond ridiculous to think it will stabilize at an acceptable level of output. It is laughable to think it's all under control.

Can we make it happen? Possibly. But that is a different road than the one we have taken.

Asked whether there had ever been anything like the Great Depression before, John Maynard Keynes replied, "Yes, it was called the Dark Ages, and it lasted 400 years."

The fall of Rome was a Great Depression on a grand scale. Professor Commons' "Era of Scarcity" was the long, slow recovery from that economic collapse. The "Era of Abundance" was the grand-scale boom. These are parts of a cycle, a business cycle on a grand scale: the cycle of civilization.

In place of the Era of Stabilization we can reasonably expect another grand-scale Depression, another "Fall of Rome", only this time it won't be Rome.

Can we avoid it? Possibly. But that is a different road than the one we have taken.

Now, as the final day of his campaign drew to a close, Scipio Africanus stood on a hillside watching Carthage burn. His face, streaked with the sweat and dirt of battle, glowed with the fire of the setting sun and the flames of the city, but no smile of triumph crossed his lips. No gleam of victory shone from his eyes.

Instead, as the Greek historian Polybius would later record, the Roman general "burst into tears, and stood long reflecting on the inevitable change which awaits cities, nations, and dynasties, one and all, as it does every one of us men."

In the fading light of that dying city, Scipio saw the end of Rome itself.
- Charles Colson in Against the Night

Arnold J. Toynbee identified at least 23 civilizations. Most of them are dead and gone. Toynbee, though, said the death of civilization was avoidable. Stefan Zenker lays it out:

In contrast to Oswald Spengler, who thought that the rise and fall of civilizations was as inevitable as the march of the seasons, Toynbee maintained that the fate of civilizations is determined by their response to the challenges facing them... The unifying theme of his book is challenge and response.

Challenge and response. If our response meets the challenge successfully, civilization advances. If not, civilization declines. It's that simple.

But we must choose the road less traveled. And that means that most of us have made the wrong choice.

Wednesday, May 17, 2017


Civilization may be seen in the rise and fall of cities, but it is measured in the rise and fall of the standard of value.

A standard of value is not (as Investopedia describes it) a value. It is a standard -- a standard, like the dollar. Not "a" dollar, but "the" dollar. The dollar is not a value; it is a standard of value, as the inch is a standard of measurement.

Beyond that, the phrase "standard of value" encompasses the idea that it is possible to set such a standard. In this sense, then, when Charlemagne put us on silver, and 1200 years later when Nixon took us off gold, both relied on an economic environment that to varying degrees supported the concept of the standard of value.

For several hundred years before Charlemagne, the environment did not support a standard of value. And unless we are most judicious, we will before long discover that for several hundred years after Nixon the economic environment again does not support a standard of value. I know this because civilization is an economic cycle.

Tuesday, May 16, 2017

The usefulness of the cyclic view

Thinking in terms of the cycle helps to organize one's thoughts.

The idea, for example, that we should reduce government to something we can drown in a bathtub is part of the decline. So is the mindless alternative, that to solve the economy's problems we must make government bigger.

I have a few notes on the upswing of the cycle here and a detail on the downswing here.

Monday, May 15, 2017

If not the origins of money, then what?

If the important fact is not whether money first arose to replace barter, then what are the important facts?

   •  A cycle of civilization exists;
   •  it is an economic cycle, as is the business cycle;
   •  it can be observed in the rise and fall of money; and
   •  it is driven by the dispersion and accumulation of wealth.

Sunday, May 14, 2017

The origins of money?

I think it’s a mistake to think you’ll find the workings of modern money by going back to the origins of money.” -- Michael Beggs, quoted in The Myth of the Barter Economy

I agree with Beggs. But the article in which he is quoted, dwells on the origin of money not being barter. That's the least important thing.

Thursday, May 11, 2017

"New rule #1: a 3 percent inflation target"

That's Thomas Palley's rule, a higher inflation target. Palley says

First and foremost, the Fed should raise its inflation target to 3 percent, or even as high as 5 percent. The current 2 percent target is a cap that inevitably keeps the economy in Wall Street’s bliss zone, and prevents the party from reaching Main Street.

I like Palley's "bliss zone" graph. But I don't see inflation as a solution to economic problems. When I took Econ 101 in the 1970s, the goal of policy was economic growth with price stability. If price stability is a goal, you don't get there by increasing the inflation target. And if the 2% target does not allow decent economic growth, then the proper response is not simply to raise the target. The proper response is to figure out why decent growth now requires higher inflation. In other words, the proper response is to figure out what the problem really is. Raising the target does nothing to discover that problem, and nothing to solve it.

Palley says raise the target. I want to look at that to see what the effect might be. And I want to look at inflation in relation to debt and GDP, for a few reasons:

1. Inflation changes GDP, but doesn't change debt.
2. Debt (private debt) is too high and must be reduced.
3. I want to see how Palley's plan affects debt and GDP.

I'll look at credit market debt relative to GDP (annual data) with inflation based on the GDP Deflator.

Palley says the inflation target should be 3% or maybe 5% instead of 2%. So, 1% higher than the target, or 3% higher than the target. But instead of imagining the future, I want to reimagine the past. I want to figure 1% higher (and 3% higher) inflation than we actually had in past years. I'll show higher inflation beginning in 1987, the year Alan Greenspan became Chairman of the Federal Reserve. I'll figure actual inflation, actual+1%, and actual+3%, and show all three together on a graph.

For debt I'm using FRED's TCMDO, which ends with 2015. So I'll be showing actual versus Palley-plan inflation for a period of almost 30 years. Maybe I should say: Palley proposes a higher inflation target for the future, not for the past. I'm just looking at the past because the data is available, to get a feel for how the Palley-plan future would turn out.

First off, GDP.  The blue line shows actual GDP (which is often called "nominal" GDP). The red line shows that same GDP and, since 1987, 1% per year more inflation than we actually had. That's the Palley 3% plan, where 3% equals target plus 1%. The green line shows GDP with 3% more inflation since 1987, the Palley 5% plan.

Graph #1
 The orange line shows GDP with all inflation removed. (This is often called "real" GDP.)  Usually, this line crosses the blue line in 2009, at around the 15000 level. I scaled it down to make it cross the blue in 1947. That makes 1947 the "base year".  You can see that very little of the economic growth we've had has been real growth, and that most of it has just been prices going up. Inflation.

You can also see that, compared to the actual (blue) numbers, Palley's 5% inflation target (green) more than doubles GDP, from less than $20,000 billion to more than $40,000 billion by the end of the 1987-2015 period.

Next, debt. I started with the year-to-year change in debt, because I'm figuring higher inflation for each year. I have to inflate each year's increase in debt separately. Maybe you plan to buy $10 of stuff on credit, but because of inflation it costs $10.50. I have to make an adjustment like that for every year from 1987 to 2015, to create my Palley-plan numbers.

Graph #2
Same colors as before: Blue is actual. Red shows 1% more than actual inflation each year from 1987 to 2015. And green shows an extra 3% inflation on top of actual. The orange line shows no inflation at all, as on Graph #1.

Next, debt again. Now that I have Palley-plan numbers for each year's change in debt, I can take those numbers and add them up to get total debt with the extra inflation already in it.

Graph #3
Now we have GDP and total debt, both adjusted for Thomas Palley's higher inflation targets. All that's left to do is match them up by color and divide debt by GDP. I come up with three different debt-to-GDP curves:

Graph #4
Blue is actual. It is the same as you would get using FRED data. Red shows the ratio when both debt and GDP are figured at an inflation rate one percentage point higher than actual. This is comparable to Palley's 3% inflation target -- one point higher than the existing 2% target -- except I am using actual data from the past rather than a target for the future.

Green shows the ratio when debt and GDP are figured at an inflation rate three points higher than actual. The green is the lowest of the three. One can generalize and say that some inflation brings the ratio down some, and more inflation brings it down more. Of course, this assumes that inflation affects wages and prices equally, and that nobody decides to use any additional credit. But you can see that inflation does have some effect on the debt-to-GDP ratio.

What I see is that the actual ratio peaked with debt at something over 3.5 times the size of GDP, that with 1% higher inflation for the 1987-2015 period, the ratio peaks at something under 3.5 times GDP, and that with 3% higher inflation for the same period, the ratio peaks at something under 3 times the size of GDP.

Is it worth it? Today, instead of having a little over 60 trillion dollars in debt, we would have a little over 70 trillion with the one Palley plan, and almost 100 trillion with the other. That's a lot of debt.

And GDP, instead of being about 18 trillion dollars in 2015, with the higher Palley plan would have been about 42 trillion. But since it is inflation that changed, not real output, it means that under the Palley plan the dollar today would be worth something less than half its present value.

I don't see inflation as a solution to economic problems.

The Excel file. Feel free to check my work.

Wednesday, May 10, 2017

"Price stability" is not the same as stable prices

A little history from Thomas Palley:

In the 1970’s the economics profession switched to focusing on inflation on grounds that monetary policy could not affect employment and output in any systematic way (Friedman, 1968; Lucas, 1972). Initially, that resulted in a new consensus that monetary policy should aim for price stability (zero inflation). However, a zero inflation target tended to land the economy in the misery zone, so the target was revised up and price stability was redefined as 2 percent inflation.

Price stability was redefined as 2 percent inflation.


This graph from Robert Sahr

From SUMPRICE.PDF by Robert C. Sahr (2003)
shows that price stability was indeed possible over the long run, until, say, the 20th century.


But maybe we have it all wrong. Check out this humorous graph from Reddit

Graph #2
The first three comments that show up at the Reddit site all complain that the graph should use a log scale because the "MASSIVE price swings" before 1950 "get obscured by this type of chart." I'd say it depends what you are trying to show. Also, on what the data measures.

But we should all be as happy as kings to see that the massive uptrend since 1950 indicates a massive increase in the "worth of one 1774 dollar".

Monday, May 8, 2017

Palley on Two Kinds of Recession

I'm reading the simple version of Thomas Palley's Monetary Policy and the Punch bowl. In it Palley writes

In effect, the monetary policy framework of the past three decades has had the Federal Reserve pursue “stop-go” interest rate policy, raising interest rates to tamp down Wall Street exuberance and slow the economy before it reaches full employment, and then lowering them again to escape recessions.

Reminded me of Paul Krugman's thoughts on recession that I touched on a couple months back. The "two kinds of recession" are quite clear in the Krugman view, but not so much in the Palley view.

Palley says the recessions of the past 30 years have been brought on by the Fed raising interest rates. That's what Krugman says caused recessions until about 30 years ago.

"Since the mid 1980s," Krugman says,

recessions haven’t been deliberately engineered by the Fed, they just happen when credit bubbles or other things get out of hand.

I don't know now. I think maybe Palley is on to something. What's the same about recessions before and after the mid-80s is that interest rates rise until recession occurs, and interest rates fall until recovery occurs.

What's different in the more recent period is that the Fed raises interest rates in response to "credit bubbles or other things" as Krugman puts it, or, in Palley's words, "to tamp down Wall Street exuberance".

The Fed's focus shifted from inflation to asset inflation. Maybe that's the difference.

Friday, May 5, 2017

Components of Interest Paid

Graph #1: Components of Interest Paid, as Percent of GDP
Households (blue), Federal (green), and US Business (red)

Wednesday, May 3, 2017

Regarding the debt of non-financial business

In Finance is not the Economy, Bezemer and Hudson

distinguish between two sets of dynamics: current production and consumption (GDP), and the Finance, Insurance and Real Estate (FIRE) sector.

On the one hand, production (and consumption); on the other, finance (and insurance and real estate).

Under the heading The Significance of Household Debt they say

In our time, arguably the most significant form that rent extraction has taken is in the household credit markets, especially household mortgages. The contrast is with loans to non-financial business for production.

Loans to non-financial businesses help the economy grow, they suggest; mortgages don't.

Under the heading Conceptual Differentiation of Credit, they are more explicit:

Loans to non-financial business for production expand the economy’s investment and innovation, leading to GDP growth.

In context, to me, they make it sound as if all (or nearly all) loans to non-financial business are for production.

They may not explicitly say that loans to non-financial businesses are almost always for non-financial purposes, but they open the door to that thought. I think the thought is untrue, and it is unfortunate that the door is opened.

The thought is untrue; consider non-financial corporate business.

Consider the financial assets of non-financial corporate business. Thirty percent of GDP in the early 1950s, financial assets rose to 60% of GDP four decades later, to 90% of GDP two decades after that. Today, they are over 100% of GDP:

Graph #1: Financial Assets of Non-Financial Corporations as a Percent of GDP
Not all of the assets of non-financial corporations are for production. Some of those assets are financial assets which produce financial income but generate no output.

If we look at all of the assets of non-financial corporations to see what percentage of those are financial assets, it turns out that the financial share has doubled, from about 25% to about 50% of assets:

Graph #2: Financial Assets as a Percent of All Assets of Non-Financial Corporations
Today, about half the assets of non-financial corporations are financial assets. That is to say, about half the assets of productive corporations are non-productive assets.

Bezemer and Hudson tell us that

Since the 1980s, the economy has been in a long cycle in which ... [s]peculation gains momentum — on credit, so that debts rise almost as rapidly as asset valuations.

Half the assets of non-financial corporations are financial assets. So probably about half the borrowing of non-financial corporations is for the purchase of financial assets. And if debts rise almost as rapidly as asset valuations, then probably half the debt of non-financial corporations is for financial -- non-productive -- purposes

So when they tell us that loans to non-financial business lead to GDP growth I have to say maybe only half those loans lead to increased output. The other half create financial costs that only increase the price of output.

Oh, and if you are wondering why finance has grown so much, the answer is that financial income is a cost to the non-financial sector. Bezemer and Hudson are absolutely right about that. The growth of finance makes the non-financial sector less profitable, driving investors out of productive investment and into finance, further increasing the growth of finance. This "long cycle" continues until the productive sector can no longer support the financial sector and then, oddly, what happens is called a financial crisis.

Monday, May 1, 2017

The Bleedin' Obvious

From "Fisher Dynamics" in US Household Debt, 1929-2011 by J. W. Mason and Arjun Jayadev (Draft: March 11, 2014). Obvious, but very well said:

When there is the possibility of default, both debtors and creditors will be concerned with debtors' capacity to service existing debt... The greater is current debt, the larger will be the contractually fixed debt-service payments, and the more likely the unit is to face difficulties meeting them.

All else aside, the greater the current debt, the greater the risk of macroeconomic troubles arising from debt. I hope it's obvious!

Sunday, April 30, 2017

Closure, on schedule

CBO assumes that any gap between actual GDP and potential GDP that remains at the end of the short-term (two-year) forecast will close during the following eight years.

On the first of March 2010, under the title The Trillion Dollar Gap, Mark Thoma showed this graph of real and potential GDP:

Here is where things stand today, some seven years later:

The trillion dollar gap has just about closed -- not by bringing real GDP up, but by bringing potential GDP down.

Friday, April 28, 2017

Issues with Figure 1 in Bezemer and Hudson's Finance Is Not the Economy

In Finance Is Not the Economy, Dirk Bezemer and Michael Hudson write:

These correlations suggest a one-on-one ratio between bank credit and the non-financial sector’s economic activity (Figure 1). Growth in credit to the real sector paralleled growth in nominal U.S. GDP from the 1950s to the mid-1980s — that is, until financialization became pervasive. Allowing for technical problems of definitions and measurement, growth of bank credit to the real sector and nominal GDP growth moved almost one on one, until financial liberalization gathered steam in the early 1980s.

Figure 1 shows how, after the mid-1980s, the real sector was borrowing structurally more than its income — a remarkable trend noted by few.

Here is their Figure 1:

Figure 1 from the Article by Bezemer and Hudson
When I presented this graph before, in If the growth of debt was one-for-one with the growth of GDP before the 1980s, the line would be flat, I was looking at the dashed line and ignoring the jiggy lines. This time, just the opposite: Look at the jiggy lines and ignore the dashed line.

According to Bezemer and Hudson, the graph "shows how, after the mid-1980s, the real sector was borrowing structurally more than its income". I don't know what "structurally more" means; I think it just means "more": The real sector was borrowing more than its income, after the mid-1980s. That's what they are saying, I think. But I find it hard to see that on the graph.

If what they are saying is true, then the bold jiggy line ("nominal credit") should run higher than the faint jiggy line ("nominal GDP") after the mid-1980s. And if the real sector was borrowing "one for one" with income before the mid-1980s, the two lines should run together. Are these conditions met?

I dunno. The lines are too jiggy to tell. The bold and faint lines seem to run more or less together until about 1985, and after that the bold is clearly higher, sometimes. But I am looking at the graph, looking for what they told me I should see in it, and I'm trying to see it. That's not objective evaluation. It's hokum.

So I did what I always do: I tried to duplicate their graph. It's a little awkward because I don't know exactly what data they are using, nor the value of their smoothing constant. I took non-financial corporate business debt and non-financial non-corporate business debt, and added them together to get a number for what they call "nominal credit to nonfinancal business". Then I found "nominal GDP" and put that on the graph too. And I showed both data sets as "YoY growth". In other words, I did my best to make my graph look like theirs (without the smoothing). Here's what I got:

Graph #2: Trying to Duplicate Bezemer and Hudson's Figure 1
Perhaps not the best of matches. The two graphs are somewhat similar. It does real harm, not knowing exactly what data they used. I can only discuss what my graph shows, not what their graph shows.

The blue line is credit growth; the red line is GDP growth. In the latter half of the graph the blue line is definitely higher than the red... sometimes. Sometimes definitely lower. And sometimes, quite the same. But these are the years for which Bezemer and Hudson say "the real sector was borrowing structurally more" than GDP. Their words put the blue line reliably above the red. My graph doesn't show it.

In the early years, where Bezemer and Hudson say we should see a "one-on-one" correspondence, the blue line runs generally higher than the red. Specifically, blue is higher for essentially all of the 1960s and the first half of the 1970s -- and for most of the 1950s as well. Credit growth was mostly higher than GDP growth in the early years, not one-for-one as Bezemer and Hudson say.

But maybe it will be easier to see if we look at the data a different way. The next graph shows the same source data. But instead of showing the "YoY growth" rates, it just shows dollars, billions of dollars. And I let the graph do the comparison for us, showing the credit number as a percent of the GDP number.

So for example, when credit is growing one-on-one with GDP, the blue line will run flat. (If the graph starts out with credit at 30% of GDP, the line will stay close to 30% as long as the "one-on-one" holds good.) And when credit is growing faster than GDP, the blue line will go up. Here is the graph:

Graph #3: Non-Financial Business Debt as a Percent of GDP
Non-financial business debt starts out at around 30% of GDP, and climbs 20 percentage points to around 50% by the mid-1970s. It is pretty much a straight-line increase all the while. After the mid-1970s it runs in fits and starts -- still with a trend of increase, but slower than before, and with a lot more variation in the path of the data.

The increase in debt, relative to GDP, is more rapid and more persistent before the mid-1970s than after. There is a 20 percentage point increase in about 25 years early on (1951-1975), and a bit less than a 20 percentage point increase in the 40 years thereafter.

The trends indicate that non-financial business debt was growing faster than GDP for the whole period shown on the graph, but more rapidly before 1975 than after. And you know, maybe that's what we should expect to see if the economy slowed in the mid-1970s and never fully recovered.

Bezemer and Hudson claim that non-financial business debt grew no more rapidly than GDP during the 1950-1985 period, and much more rapidly thereafter. I don't see it.

Thursday, April 27, 2017

Simple answers

Lookin up somethin in Bezemer & Hudson's Finance Is Not the Economy, I get as far as the opening sentence:

Why have economies polarized so sharply since the 1980s, and especially since the 2008 crisis?

Why are they focusing on the years since the 2008 crisis? or more remotely, on the years since the 1980s? It was the years before 2008 that led to 2008. It was the time before the 1980s that led to the 1980s. People like to look at consequences of economic problems, and attempt to fix consequences. No wonder we reliably fail.

Moving on, then, I get as far as their next sentence:

How did we get so indebted without real wage and living standards rising, while cities, states, and entire nations are falling into default?

How did we get so indebted? That's easy: We think we need credit for growth. So economic policy does many things to encourage the use of credit. But when we use credit, we increase our debt.

Economic policy makes our debt increase. That's our debt I mean, not the government debt.

Economic policy encourages us to use credit, and does nothing about the resulting debt. Therefore, our debt accumulates.

That is how we got so indebted.

Wednesday, April 26, 2017

Looking for answers in all the wrong places

Supply-side economics is a macroeconomic theory that argues economic growth can be most effectively created by investing in capital and by lowering barriers on the production of goods and services.

Noah considers the mystery of "labor's falling share of GDP":

Economists are very worried about the decline in labor’s share of U.S. national income.

He finds

four main potential explanations for the mysterious slide in labor's share. These are: 1) China, 2) robots, 3) monopolies and 4) landlords.

He goes thru the list, finding some merit and some problem with each of those explanations. Then he juggles them a bit and comes up with this:

So monopoly power, robots and globalization might all be part of one unified phenomenon -- new technologies that disproportionately help big, capital-intensive multinational companies...

That theory still doesn’t explain how landlords might fit into the picture. But it provides a possible way to unify at least some of the competing explanations for this disturbing economic trend.

Interesting. Noah is seeking a Unified Theory to explain the decline of labor share.

Here's one: Supply-side economics.

Monday, April 24, 2017

Milanovic reviews Bas van Bavel’s theory of rise and fall

In the sidebar at Economist's View, A theory of the rise and fall of economic leadership - Branko Milanovic. How could I resist?

The link is a review of the

recently published “The invisible hand?: How market economies have emerged and declined since AD 500” (Oxford University Press, 2016, 330 pages) by Bas van Bavel


Van Bavel’s key idea is as follows. In societies where non-market constraints are dominant (say, in feudal societies), liberating factor markets is a truly revolutionary change. Ability of peasants to own some land or to lease it, of workers to work for wages rather than to be subjected to various types of corvĂ©es, or of the merchants to borrow at a more or less competitive market rather than to depend on usurious rates, is liberating at an individual level (gives person much greater freedom), secures property, and unleashes the forces of economic growth.

I recently noted the reintroduction of money to the West in the time of Charlemagne and Offa, three or four centuries later England's move from feudal service obligations to cash payments and, three or four centuries after that, England's "An Act Against Usurie" of 1545.

In my conclusion I pointed out "Step four: Debt and interest cause the fall of civilization."


But the process, Bavel argues, contains the seeds of its destruction. Gradually factor markets cover more and more of the population...

One factor market, though, that of capital and finance, gradually begins to dominate. Private and public debt become most attractive investments, big fortunes are made in finance, and those who originally asked for the level playing field and removal of feudal-like constraints, now use their wealth to conquer the political power and impose a 'serrata', thus making the rules destined to keep them forever on the top.

Bavel is dismissive of a unilinear view that regards the ever widening role of factor markets, including the financial, as leading to ever higher incomes and greater political freedom. His view, although not fully cyclical (on which I will say a bit more at the very end of the review) is “endogenously curvilinear”: things which were good originally, when they hypertrophy, become a hindrance to further growth. It is thus a story of the rise and fall where, like in Greek tragedies, the very same factors that brought the protagonists grandeur, eventually hurl them into the abyss.

Exactly so. At the start, finance boosts economic growth. But long before the end, finance already hinders growth more than it helps.


It is not only the plausibility of the mechanism of decline that gives strength to Bavel’s thesis; it is also that he lists the manifestation of the decline, observable in all six cases. Financial investments yield much more than investments in the real sector, the economy begins to resemble a casino, the political power of the financiers becomes enormous...
What the ancient writers describe as “decadence” clearly sets it, but, as Bavel is at pains to note, it is not caused by moral defects of the ruling class but by the type of economy that is being created. Extravagant bidding for assets whose quantity is fixed (land and art) is a further manifestation of such an economy: the bidding for fixed assets reflects lack of alternative profitable investments...

The readers will not be remiss in seeing clear analogies to today’s West.

I agree absolutely: The mechanism of decline is finance... Finance provides a better return than the productive ("real") sector... The decadence that sets in is an outgrowth of the economy that has been created.

And also the analogy to the West. But Milanovic's summary neglects to explain the "lack of alternative profitable investments". The reason is that those (real sector) investments bear the cost, the perpetually increasing cost of finance.

The summary also neglects to note the reason finance provides a better return than the 'real' sector. The reason of course is those same financial costs of the 'real' sector, which are income to the financial sector. And the growth of finance only makes the problem worse.

Recommended reading.

Tuesday, April 11, 2017

Net Money Added by Borrowing

How does it look when we compare
money added to the economy by increases in credit market debt
money drained out of the economy as interest payments

Money added relative to money drained:

Graph #1: Annual Change in Total Debt, relative to Annual Interest Payments
In the early years it's a wash, about one-for-one. After the mid-1970s it drops some: Less money is added than drained. Then there is a last-gasp peak between 2000 and the crisis, followed by sharp drop and the crisis. And now it is back in the normal range, as if nothing happened. Funny how that works.

A horizontal line at 1.0 would mean our new borrowing is equal to the amount we turn over to finance as interest payments every year. No effect on the money supply. Above 1.0 would mean we are borrowing more than we are paying as interest (increasing the money supply). And below 1.0 would mean we are borrowing less than we are paying as interest (decreasing the money supply).

What I want to see with this graph is how much of a boost borrowing gives the economy, and how much is only a boost to the financial sector. The graph is not a perfect indicator, because some portion of interest paid is withdrawn by the recipients and spent back into the economy. I don't know how much of it is withdrawn and spent, but it has to be somewhere between the zero line and the blue line.

Total debt is a "stock" but the change in total debt is a "flow". Interest paid is also a flow. The flow-to-flow ratio is ... dunno, a ratio, I guess, as "billions per year" cancels "billions per year". Whatever. I want to look at the accumulation of differences over the years.

By "accumulation of differences" I mean the number shown on the graph, minus 1, and the sum of those values over time. Why "minus 1"? Because the graph shows the change in debt per dollar of interest paid. I want to subtract the dollar of interest. If the blue line is at 1.1, it means we borrowed $1.10 for every dollar of interest paid. I subtract the dollar of interest paid to see how much economic boost we got from the borrowing: ten cents.

But if the blue line is at 0.8, it means that for every dollar of interest paid, we borrowed 80 cents. Subtract the dollar, and it turns out we're 20 cents short. The net effect of these financial changes was to create a drag on economic activity, rather than a boost.

(These examples assume that no money is ever spent out of savings, which is unrealistic. But the graph gives us a feel for what's happening, and a way to think about it.)

I determine the amount of boost or drag by subtracting the interest number from the change-in-debt number. Then I add up the results to see the cumulative boost or drag. It's an interesting detail, an interesting indicator.

I took the FRED data from Graph #1 and did the subtraction and accumulation in Excel.

Graph #2: At 100% accumulation of Interest Received
If no interest income is ever spent out of savings (100% accumulation), there is still some benefit to the economy from borrowing in the 1960s. But it goes negative in the 1970s, meaning there is more benefit to the financial sector than to the economy as a whole. And it goes negative rapidly, beginning in the late 1970s.

By the last year shown (2015), at 100% accumulation, the accumulated reduction of circulating money comes to ten dollars for every dollar of interest paid. I think that's an unrealistic number. I think it must be true that less than 100% of interest received is retained as savings, and that some portion of interest received is spent back into circulation.

Here is how the graph looks with a 50% accumulation rate:

Graph #3
Now we see about $5 negative effect instead of $10. $5 still strikes me as unrealistic. But the more interesting thing about this graph is that the shape of the line is the same as before. The line still goes negative in 1970, and the downtrend still accelerates in the late 1970s.

If we cut the rate of accumulation in half again, the shape of the line remains unchanged:

Graph #4
It's just more difficult to see. And if we reduce the rate to just 10%, meaning 90% if interest income is withdrawn from savings and spent back into the economy, the blue line is more compressed but again its essential shape remains unchanged:

Graph #5
Can't see it now, but the benefit to the economy goes negative (becoming a drag on the economy) in 1970, and the downtrend accelerates in the late 1970s.

On this graph, the accumulated reduction of circulating money as of 2015 comes to about a dollar for every dollar of interest paid. Just a gut feel, that number is unrealistically low.

More on this tomorrow eventually.

Monday, April 10, 2017

Since 1834

I don't accept their explanation, but I do like their graph:

The path of GDP growth is a pretty good mirror-opposite of the path of total debt, for 180 years. To me, that's an impressive picture. You, I know, you will say the data is suspect. Or you will argue that the trend lines don't fit the circumstances -- that they don't properly show the Great Depression maybe. To me it's an impressive picture, not so easily dismissed.

One of the things you can do with total debt is break it into its public and private components. Guess what we're doing today.

I went back to Steve Keen's estimate for US debt that extends back to 1834, converted his monthly data to annual, and compared the public to private:

Graph #2: Public 9blue) and Private (red) Debt relative to GDP, 1834-2011
Here again we see opposing tendencies. Private debt falls and public rises until they meet. Then private rises and public falls. Then for a while they both rise. And then private debt falls and public rises until they meet, and the whole sequence repeats.

This time around, though, the trend line doesn't yet show private debt falling. Maybe if I added in the years after 2011 we would see it. But even if that's true there's a long way to go, if the plan is for private to fall and public to rise until they meet.

In the meanwhile, consider what these two graphs tell us. At the end of the scale where we are not reading much into the graphs, we can say

1. There is an inverse relation between "total debt to GDP" and GDP growth, and
2. There is a repeating pattern in the relation between the public and private components of total debt,

I'm gonna go now and think about that for a while.


The Excel file


EDIT 18 May 2017

Keen and Bawerk both hint at the source of data for the early years' debt. Another hint may be found below Figure 7 in Thomas Philippon's Has the U.S. Finance Industry Become Less Efficient? Philippon writes:

Fitted Series uses assets on balance sheets of financial firms to predict total debt. Sources are Historical Statistics of the United States and Flow of Funds.

"Fitted series" is a reference to the data which extends his debt-to-GDP numbers before 1929, back to the 1870s.

For Figure 7 see my Finding Philippon's FinEff.pdf or the PDF.

Sunday, April 9, 2017

Not quite anything

In 1981, when President Reagan said "only by reducing the growth of government can we increase the growth of the economy," the Federal debt was less than one trillion dollars. After Reagan, and Bush, and Clinton the Balancer, and another Bush, and the Great Recession and the not-so-great recovery, we have managed to increase the Federal debt from one trillion dollars to twenty.

At this point, people are so angry they can't think straight. We'll do anything to reduce the debt.

But no, that's not true. We won't do just anything. Almost anything, yes, but not anything. We won't, for example, change our strategy. The higher the debt goes, the more tenaciously we cling to the view that Federal spending cuts are necessary. And it's not only conservatives who cling. This image is from the overtly liberal Huffington Post:

Source: HuffPo
Yeah, I know: By the time you read all those examples, you're ready to cut Federal spending. Me, too.

See? We cling fiercely to the belief that Federal spending cuts will solve the problem. They won't. But no matter: The higher the debt, the more we cling.

We have added $19 trillion to the debt since President Reagan said we need to reduce the growth of government. I can't imagine how much we would have added if reducing government wasn't the heart and soul of our strategy.

How long will it take us, I wonder, to realize that our strategy -- reducing the growth of government to increase the growth of the economy -- has failed. How long will it take, before we are ready to try a different strategy.

Saturday, April 8, 2017

Contradicting Richard Duncan

Looking for something on credit and economic growth, I found Credit Growth Drives Economic Growth, Until It Doesn’t by Richard Duncan, from 2011.

The title is perfect.

The article is pretty good. But I have to look at his opening paragraph. I have problems with his opening paragraph. Here's the whole of it:

The single most important thing to understand about economics in the age of paper money is that credit growth drives economic growth. Before the breakdown of the Bretton Woods international monetary system in 1971, there was a difference between money and credit. There no longer is. Paper dollars and US treasury bonds denominated in paper dollars are just different types of government IOUs. When gold was money, the increase in the Money Supply (M1 and M2) had an extraordinary impact on the economy. Today, what matters is the increase in the total supply of credit.
I'll take it a piece at a time.


The single most important thing to understand about economics in the age of paper money is that credit growth drives economic growth.

It is important to understand that credit growth drives economic growth. Not to quibble, but "The single most important thing"?? You can get into trouble if you understand credit growth without understanding the accumulation of debt. For example, Duncan writes

The total amount of debt is equal to the total amount of credit.

which is certainly correct. Immediately following, he writes

Debt and credit are two sides of the same coin.

which is a meaningless generalization.

The "same coin" metaphor is good. But not good enough. When you borrow a dollar, two dollars are created: a dollar of new money, and a dollar of new debt. The dollar of new money looks and acts just like a dollar of money. The dollar of new debt has a minus sign before the "$1", and you cannot spend it.

You can spend the dollar of new money. It goes into circulation, and no one ever has to know that it was a dollar you borrowed. But you know, because you still have the negative-money that you cannot spend: You still have the debt.


Before the breakdown of the Bretton Woods international monetary system in 1971, there was a difference between money and credit. There no longer is.

That is incorrect. There is a difference between money and credit. Money is issued by the government now, instead of by the people who find gold. Credit is issued by private sector banks, as always.

Come to think of it, the people who find gold never issued money, not for centuries anyway. People who found gold would turn it in to the government, to the mint or something, and get coined money in exchange. It was the government that issued the money, even then.


Paper dollars and US treasury bonds denominated in paper dollars are just different types of government IOUs.

Whenever I see the word "just" used like that, in place of facts, I have a problem.

Paper dollars and Treasury bonds are not "just" different types of government IOUs. The people who have Treasuries collect interest on them. The people who use paper dollars pay interest on them.

More accurately, unless I seriously misunderstand something, the U.S Treasury collects interest on Federal Reserve Notes from the Fed, the Fed gets it from the people (private banks, mostly) they deal with, and private banks get it from the people who bank with them, which is us.

The US Treasury pays interest on bonds, and receives interest on notes. Bonds and notes are nothing like each other, far as I can see.


When gold was money, the increase in the Money Supply (M1 and M2) had an extraordinary impact on the economy. Today, what matters is the increase in the total supply of credit.

No. Duncan has two puzzle pieces in hand that don't go together, and he is forcing them together by putting the one sentence after the other.

When gold was money, the increase in M1 and M2 money had an extraordinary impact on the economy because in those days there was much less credit per dollar of money. It is true that what matters today is the total supply of credit. But it was not going off gold that made it true. The growing use of credit relative to money made it true.

It was also the growing use of credit relative to money that forced the dollar off gold.


Nick Rowe says:

Gold mines were the central banks of the past. Central banks are today's gold mines.

I agree with Nick. It was not going off gold that changed things. And just as the expansion of private credit beyond what gold could support created problems for gold-based money, it is the expansion of private credit beyond what central banks can support that creates problems for central-bank-based money today.

Friday, April 7, 2017

Which came first?

"Credit Growth Drives Economic Growth," Richard Duncan writes, "Until It Doesn’t":
The single most important thing to understand about economics in the age of paper money is that credit growth drives economic growth. Before the breakdown of the Bretton Woods international monetary system in 1971, there was a difference between money and credit. There no longer is. Paper dollars and US treasury bonds denominated in paper dollars are just different types of government IOUs. When gold was money, the increase in the Money Supply (M1 and M2) had an extraordinary impact on the economy. Today, what matters is the increase in the total supply of credit.
But I have to ask: Which of these came first?

    A. Taking the dollar off gold allowed a vast increase in credit.

    B. The increase of credit forced the dollar off gold.

It's not chicken-or-the-egg. There is a clear answer.

Wednesday, April 5, 2017

It would, indeed, be more sensible to build houses and the like; but…

Graph #1, from Robert Schroeder at MarketWatch
How did we end up with so much Federal debt? People answer that question in different ways. But a graph full of excuses is not a macroeconomic explanation.

As a rule, nobody borrows money to not spend it. If there is Xteen dollars of debt, we can reasonably assume that about Xteen dollars of borrowed money were spent one way or another. We can assume that the money was spent. A detailed list of the things it was spent on accounts for nothing, particularly if the purpose of the spending was to increase the real income of the community.

The wars, tax cuts, and stimulus packages on Schroeder's graph were all supposed to be good for the economy. If the spending didn't work as intended, then we have bigger problems than what the money was spent on.

From Chapter 10:
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

Sunday, April 2, 2017

Assumptions and the Progress of Economic Growth

From Potential Output and Recessions: Are We Fooling Ourselves? (November 2014) by Robert F. Martin, Teyanna Munyan, and Beth Anne Wilson:

First, output typically does not return to pre-crisis trend following recessions, especially deep ones. Second, in response, forecasters repeatedly revise down measures of trend.

On average, GDP remains well below its previous trend, even for short and shallow recessions. Deep and long recessions, of course, lead to the largest cumulative output loss.

If actual growth returned to pre-crisis trend then growth immediately following recessions would be higher than average to make up the gap. In fact, the average growth in the four years after the recession trough is generally lower than prior to the pre-recession peak.

Economic models usually assume that recession-induced gaps will close over time, typically via a period of above trend growth. In our results, growth is not faster after the recession than before, implying that the recession-induced gap is closed primarily by revising estimates of trend output growth lower.
I thought that was pretty interesting.

They say

Economic models usually assume that recession-induced gaps will close over time...

Reminds me of an old CBO paper that says

CBO uses potential output to set the level of real GDP in its medium-term (10-year) projections. In doing so, CBO assumes that any gap between actual GDP and potential GDP that remains at the end of the short-term (two-year) forecast will close during the following eight years.
So, yeah.

Saturday, April 1, 2017


TCMDO is discontinued, again, for a while now. It comes and goes. Anyway, the replacement for TCMDO is to take

All Sectors; Total Debt Securities; Liability  (ASTDSL)


All Sectors; Total Loans; Liability  (ASTLL),

add them together, and divide by 1000 to convert millions to billions. I have to write it down or I won't remember.

When I figure "Debt other than Federal" I take TCMDO (or the replacement noted above) and subtract FGTCMDODNS. But that's a problem too, because FGTCMDODNS hasn't been updated since 2015. So since this problem has finally resurfaced, I took the time to look for a more current measure of Federal debt.

I'm going with

Federal Government; Credit Market Instruments; Liability, Level  (FGSDODNS)

which is seasonally adjusted, and

Federal government; debt securities; liability, Level  (FGDSLAQ027S)

which is not. The latter is given in millions. Both are quarterly and run thru the last quarter of 2016, just now. FGTCMDODNS is quarterly but ends at Q2 2015. And FGDSLAA027N ends with 2016 but is annual.

So there you are.

Friday, March 31, 2017

"... is usually interpreted as ..."

From The Fed's Dual Mandate: Lessons of the 1970s, a message from James Bullard:

When the U.S. Congress amended the Federal Reserve Act in 1977, it essentially gave the Fed a dual mandate: to promote maximum sustainable employment and price stability. Price stability is usually interpreted as low and stable inflation...

Price stability may be "interpreted" that way, but low and stable inflation is NOT the same as price stability.

Thursday, March 30, 2017

"Trumped-up expectations"

Mosler's words.

"Seriously trumped up consumer expectations continue," he says. But if Mosler was going for the pun the "T" should have been capitalized, unless he was trying to show disrespect.

Mosler shows a graph to go along with his words. I eyeballed-in some trend lines:

Graph #1 Source: The Center of the Universe
The trend shows an upward drift (straight line) to January 2015, a downward drift until May 2016, and an upward acceleration (curved line) since May. We have acceleration now, not drift.

The "retail sales" (gray bars) show sharp increase since August 2016.

The election was in November. By Mosler's graph, the improvement takes hold three to six months before the election. A year or two from now, everyone will be saying Trump is making things better. Everyone will be wrong.

A year ago, in We are at the bottom now, ready to go up, I wrote:

This is not going to be your typical anemic recovery. This is going to be the full tilt, rapid output growth, rapid productivity growth, high performance boom. I can't promise you it'll last long, because the level of debt is already very high. But it'll be a good one while it lasts.

Mosler's graph is early evidence that the prediction was right.

I do think that the bold, persistent experimentation of the Trump Administration will generate a measure of economic improvement, even if the policies are dead wrong, because expectations count for something. Look what happened under Reagan:

Let us not forget that real GDP growth in 1984 was 7.3 percent; the next-highest value since was just 4.7 percent in 1999.

One year of healthy growth. That's what Reagan got us. One good year. So don't expect much from expectations.

Expect much from improved monetary balances.

Wednesday, March 29, 2017

“If you abolished the government, would America be more or less equal?”

Angus Deaton:
Someone asked me the other day when I was giving a talk a really interesting question. They said, “If you abolished the government, would America be more or less equal?” Because there’s all the equality that comes from redistribution but there’s all the inequality that comes from rent-seeking. And it’s not clear to me which one.

But when you abolish government, governments arise.

In Europe:
The fall of the Roman Empire plunged Europe into the Dark Ages and decentralized the region. The Imperial system in Rome was replaced with a loose-knit group of kings and princes throughout Europe.

In Great Britain:
By convention, the Heptarchy lasted from the end of Roman rule in Britain in the 5th century, until most of the Anglo-Saxon kingdoms came under the overlordship of Egbert of Wessex in 829...

If you abolish government, governments arise, but not necessarily better ones. Myself, I think we should keep the government that was designed and built in the Age of Reason. Instead of throwing away the good stuff, we should sit down and think about the thing that went bad: Think about the economy. Because, obviously, the fix we've been using for the last forty years has not worked. Obviously there is something wrong with our plan.

Dump the bath water. Keep the baby.

Tuesday, March 28, 2017

Something else

Syll quotes Wren-Lewis:

If we really think there is no relationship between unemployment and inflation, why on earth are we not trying to get unemployment below 4%? We know that the government could, by spending more, raise demand and reduce unemployment. And why would we ever raise interest rates above their lower bound? …

There is a relationship between inflation and unemployment, but it is just very difficult to pin down. For most macroeconomists, the concept of the NAIRU really just stands for that basic macroeconomic truth.

Okay. And Syll quotes Daniel Kahneman:

I have had several occasions to ask founders and participants in innovative start-ups a question: To what extent will the outcome of your effort depend on what you do in your firm? This is evidently an easy question; the answer comes quickly and in my small sample it has never been less than 80% … They are surely wrong: the outcome of a start-up depends as much on the achievements of its competitors and on changes in the markets as on its own efforts …

There's a relation between "the outcome of your effort" and "what you do in your firm". Asked the question, anyone with an ego would find it a strong relation. But Kahneman suggests that people tend to overlook other strong relations such as the outcome of competitors' efforts, and market saturation.

Your own efforts are not the only thing, Kahneman says. There is something else: the environment in which you operate.


There's a relation between unemployment and inflation. It's a strong relation. Simon Wren-Lewis that this relation is "difficult to pin down". Syll quotes him again:

The concept of the NAIRU, or equivalently the Phillips curve, is very basic to macroeconomics. It is hard to teach about inflation, unemployment and demand management without it. Those trying to set interest rates in independent central banks are, for the most part, doing what they can to find the optimal balance between inflation and unemployment.

Syll has a lot more trouble with this quote than I do. For me it is an opportunity to point out that achieving "the optimal balance between inflation and unemployment" may depend on something other than inflation and unemployment.

Monday, March 27, 2017

Economic Potential and the Growth of Debt

Private Non-Financial debt, PNF for short. Total in billions. It goes up:

Graph #1: Private Non-Financial Debt, Total

Change from previous quarter, in billions. It goes up:

Graph #2: Quarterly Change in Billions, Private Non-Financial (PNF) Debt

The change as a percent of the accumulation. It doesn't go up:

Graph #3: Private Non-Financial Debt, Percent Change (Quarterly Data)
That should tell you something.

With inflation stripped away, it goes down. The boost to growth goes down:

Graph #4: Real PNF Debt Growth (Quarterly Growth at Annual Rate)

The trend line shows how it goes:

Graph #5: Real PNF Debt Growth plus Trend Line
It goes down. Note, however, what happens in the '90s: It goes up. It is up at the same time that productivity is up and the economy is good. But then the debt increase of the early 2000s, which looks exactly like that of the latter 1990s, ends in disaster.

Of course, as Graph #1 shows, the increase of the early 2000s was not exactly like the increase of the latter 1990s.

Still, this last graph does show what it takes to make the economy good. It takes an adequate growth of credit, without an excessive accumulation of debt. And it shows what it takes to achieve that goal: It takes a sufficient decline in the growth of credit, as we had after 1985.

Was the decline of 2008 sufficient? Time will tell. To me it looks promising. But I'm not looking at the accumulation.


Economic Potential and the Growth of Debt.xls for the inflation adjusted graphs.

Sunday, March 26, 2017

Some history of interest

Richard Werner:

... the charging of usury (interest), which until about 300 years ago was illegal in most countries, including throughout Europe.

I didn't know that. How could I not know that?

I did know that at least two major religions that grew up after the fall of Rome did not look kindly on lending at interest. I always thought of this as evidence that debt and interest were at the time held to be responsible for the fall.

Couple tidbits from Wikipedia...

Usury is, as defined today, the practice of making unethical or immoral monetary loans that unfairly enrich the lender. Originally, usury meant interest of any kind.

I'm thinking usury was always thought "unethical or immoral". In other words, charging "interest of any kind" was unethical and immoral, back when. And I'm thinking it was not the ancients but the moderns who changed the meanings of words so that "interest" was generally okay, and that only the extreme we now call "usury" served to "unfairly enrich the lender."

This tidbit supports that view:

Public speaker Charles Eisenstein has argued that the pivotal change in the English-speaking world seems to have come with lawful rights to charge interest on lent money, particularly the 1545 Act, "An Act Against Usurie" of King Henry VIII of England.

Oddly, the law that made it legal to charge interest on money was called an act against usury. It seems the meaning of the word "interest" had become benign already by the year 1545.

There is a "[clarify]" note attached to that sentence at Wikipedia, but it's pretty clear to me: The change in the meaning of the word made interest acceptable, and that was the first step in the rise of financialization. Legal interest was the birth, no, was the moment of conception of capitalism.

About 300 years before Henry VIII,

In 1275, Edward I of England passed the Statute of the Jewry which made usury illegal and linked it to blasphemy, in order to seize the assets of the violators.

Edward I was "Longshanks" in the movie Braveheart.

I read one time that King so-and-so of England was the first to use money to pay the people who worked for him. That seems a real break with the feudal tradition of exchanging labor for protection, and I still remember a fragment of what I read. Looking it up now, at A Comparative Chronology of Money -- nice site! -- I find this:
1159 Scutage tax introduced by Henry II in lieu of military service
The annual 40 days service owed to him by his tenants-in-chief and their retainers is commuted into cash payments and with the proceeds he is able to establish a permanent army of mercenaries or professional soldiers as they commonly became known after this time from the solidus or king's shilling that they earn.

So Henry II chose to receive payments in money rather than service, and he used the money to pay his troops. Circular flow, a hundred years or so before Edward.

Some 300 years before Henry, Charlemagne set up a new monetary standard, as did King Offa of Mercia. "Charlemagne applied the system to much of the European Continent, and Offa's standard was voluntarily adopted by much of England."

I like the way the pieces fit to a timeline:

Step one: Set up a monetary system people can use. Wait 400 years.
Step two: The government itself adopts this monetary system. Wait 400 years.
Step three: Money changes the culture. Interest is no longer a bad thing. Wait 400 years.
Step four: Debt and interest cause the fall of civilization.

300 years ago, charging interest was illegal almost everywhere. Today the global economy is constipated by debt.