** Tuesday evening, Bob will join our weekly online gathering where we’ll listen to the podcast together and discuss. Bring your questions for him. September 9 at 8pm ET/5pm PT. Use this link to register: https://us06web.zoom.us/meeting/register/1HA3nd_5QFSFzBe_cGiHpw 

This is Bob Hockett’s 12th visit to Macro N Cheese. Back in 2022, in an episode discussing the collapse of the major crypto exchange platform FTX, Bob gave us a useful rule of thumb: 

“The irony is that in every one of these cases there is a clue in the name of the product in question that ought to warn you. If it’s called a junk bond, there’s a reason for that word “junk” being used. And if it’s called a subprime mortgage loan... there’s a reason for that “subprime” term. Similarly with cryptocurrency or crypto assets, one of the most ironical names ever conceived for this kind of product. If the word “crypto” comes into it, then that’s a pretty good tip-off that there’s something non-transparent about it, that there’s something opaque and occluded and difficult to understand.” 

Hmmm... today’s topic is the GENIUS Act. What meaning should we take from that name? 

In this episode, Bob and Steve talk about the newly-passed GENIUS Act whose stated purpose is regulation of the stablecoin industry, bringing the shadow banking industry into the light and out of the, um, shadows.   

The discussion looks at the flawed premise of private stablecoins and the real motives behind the push. Far from preventing instability and fraud, promotion of stablecoin aligns with a libertarian ideology (a la Hayek) that seeks to denationalize currency and privatize money. From a Modern Monetary Theory perspective, the implications are alarming. It merits a discussion of the role of the state. 

 The GENIUS Act is a dangerous distraction. A Trojan Horse.  

 Robert C. Hockett is the Edward Cornell Professor of Law at Cornell Law School. His principal teaching, research, and writing interests lie in the fields of organizational, financial, and monetary law and economics 

 His forthcoming and recent books are: World Money (Yale 2026); A Republic of Producers (Yale 2025); Making Capital Democratic (Polity 2025); Spread the Fed (Palgrave 2025); The Citizens' Ledger (Palgrave 2022); Democratizing Finance (Verso 2022); Money from Nothing (Melville House 2020); Financing the Green New Deal (Palgrave 2020).  

@rch371 on X    

All right, everybody, this is Steve with Macro and Cheese, and today's guest is going to be none other than Bob Hockett, and he is a many, many times over returning guest.

And it's been a hot minute since we've had Bob on here, but we are going to be talking about a subject that I feel is very, very important for a host of reasons, not the least of which it is literally kind of diving us deeper into the crypto space.

It's diving us deeper into this weird perversion of private currencies and kind of the Hayek approach to privatization and getting rid of the nationalization of the dollar, if you will. I mean, the dollar as the dominant national currency. That was Hayek's dream. And we'll dig deeper into that as we get deeper into the show.

But without getting too far down the Runway and bearing the lead here, let me introduce my guest. Robert Seahocket is the Edward Cornell professor of Law at Cornell Law School.

He is a regular visiting professor of finance at Georgetown's McDonough School of Business and senior counsel at Westwood Capital LLC in Manhattan. He was previously counsel at the Federal Reserve bank of New York and the IMF, and clerked for the U.S. appeals Court for the 10th Circuit.

He holds degrees from Yale, Oxford, where he studied as a Rhodes Scholar, and the University of Kansas.

His pro bono work lies in the fields of enterprise, organizational, financial and monetary law and economics, both their positive and normative, as well as our local, national and transnational dimensions.

He does regular consulting and legislative drafting work for many state, local, national and international legislators and regulators and has been a frequent guest of Macaron Cheese. So without further ado, let me bring on my guest, Bob Hockett. Welcome to the show, sir.

Hey, Steve, great to be back with you again.

You know, I don't know much about this act, but I do know that it is kind of appeasing the libertarian mind and the folks of the far right within the Trump administration's kind of affinity group here. And given that, I don't think most people know much about Hayek.

I mean, I'm sure the academics do, but I'm sure the regular rank and file do not, and they probably don't know a lot about this genius act either. So why don't I let you take a minute to fill us in and get the background of this and then we can dive into the mechanics of it all.

Sure, a big topic, but happily one that is quite simple at its core. So I guess what we can do is kind of start with the simple and then build out to the complex.

And hopefully in doing that, we'll sort of impress on folk, or we'll make it all the more obvious to everybody why it would actually be a good idea to kind of stick with simplicity. Maybe. The first thing I'll say, though, is that I'm kind of surprised by what should we call it?

The kind of nomenclature money left on the table, so to speak. I'm going to be kind of shamelessly punning, I think, throughout this episode. I can feel it coming on.

But since it's, you know, nominally about stable coins, I'm surprised they didn't call it the stable genius act.

Not only because of that sort of self description of the father of our country right now, but also, of course, because one way to think about this enactment is as a way of making this industry a bit more profitable for a family that suddenly seems to find itself quite interested in this industry. And that would of course be the Trump family.

But I'm going to sound a little bit cynical in saying that, although I think it's actually a big part of this story, but let's start with the part of the story that they want us to sort of be attending to, and then we can kind of go beneath or behind that. So nominally, on the surface, what's going on here, what Congress sort of wants you to think is that, look, there's this sort of growing industry.

It's one of the few realms in which America still, quote, unquote, leads.

It's one of the few realms in which America still, quote, unquote, is one of the more innovative places in the world, if not indeed the most innovative. And so what we ought to do here, Congress wants you to think, is to do the usual thing.

We want to provide some basic ground rules which will enable all of this ingenious innovating to continue, but in a way that's not needlessly or wastefully disruptive.

So the idea is to kind of optimize the development in this rapidly developing, innovation rich industry where America still leads and provide, you know, a nurturing environment on the one hand, but an environment that on the other hand is not needlessly dangerous to Ordinary Janes and Joes, you know, people like you and me who might be otherwise adversely affected by it. Again, this is the fiction, this is what we're supposed to be thinking. So what is this industry? What is this realm?

Well, the claim is that there's all this innovation going on in payments technology and we're going to have sort of efficiency miracles wrought by these new payment systems and these new currencies that operate within these new payment systems. And these are all going to be sort of enhancing the productivity of the economy, eliminating waste from the economy and so forth.

So of course we're all, you and I, just all of us regular Janes and Joes are going to be attracted to this industry to sort of make use of its products or make use of its services.

But insofar as that's the case, on the one hand, and we're not experts or technological wizards in our own right, on the other hand, certain protections have to be provided.

Certain minimal protections, of course, but protections that essentially ensure that we don't end up losing money or being swindled or taken for a ride or what have you. And that's the sort of, again, the kind of, the nominal justification for this enactment. Let me pause there and see if that all sounds.

You're right on target, brother. Keep on going, man. Thank you so much.

Oh no. You bet.

Now you can see some evidence for this claim that I've just made as to how they intend for us to take this, how they intend for us to sort of understand or interpret this in some of the rhetoric that you hear out there. Of course, all of your listeners will have heard all of the efficiency rhetoric and the innovation rhetoric.

And let's not stifle or choke off this kind of growth industry or this area where America has an inherent advantage and so forth. They've heard all of this sort of thing. Perhaps some have also heard this one other piece of sort of justificatory rhetoric that you hear.

And now we're getting a little closer to the mechanics of the product itself, so to speak, or of the industry itself.

So you'll often hear or see people talking about how there's greater efficiency in payment if we use these stablecoins or other kinds of cryptocurrencies as means of payment. Especially if we're talking about cross border transactions.

They'll say that if you're using the traditional banking channels of payment in any kind of transacting, but especially if it's cross border transacting, they'll say, oh, it's Less efficient, it takes longer, it takes a while for the transactions to clear, things have to be verified and so forth.

And these so called stablecoins or other kinds of cryptocurrencies or alternative payment mechanisms or payment systems or payment platforms are quicker. Right. You might even have real time clearing and settling is one of the phrases of art that you'll hear sort of dropped in conversations like this.

Real time clearing and settlement. And that's one of the so called efficiency gains that are supposedly offered by this industry. And that's what is then the typical.

When we think in terms of the mechanics of this industry or the mechanics of these products and services and how they work, that's the primary mechanism or mechanical advantage that will be sort of specified. If you sort of call them out and say, hey, wait a minute, what is the efficiency advantage?

Or in what sense is this actually something that adds value? Now, the reason I highlight that is the sort of mechanical advantage that they'll typically adduce Right.

In the rhetoric that they'll offer in sort of explaining why these developments are good things, why this industry is a good thing, and hence why we ought to have legislation to sort of optimize its kind of continued and safe development is precisely because this is where the primary sophistry is concealed. Right. And what do I mean by that?

Well, it would be very, very, very easy to have real time clearing and settlement of transactions and hence to have no need at all for this industry and at least any need of the kind that those who are justifying it or trying to justify it typically avert to or point to simply by providing a national payment and savings platform.

Sure.

The fact of this possibility should be a touchstone, I think, in any evaluation or discussion of the cryptocurrency industry and the so called stablecoin industry and so forth.

So you'll remember when we talked about this book, this is the one called the Citizen's Ledger and It's published by JM Keynes, his old publisher, Palgrave McMillan.

You'll recall that the Treasury Department actually already offers a platform to anybody who wants to take part or participate on it, called TreasuryDirect. And all of your listeners can Google TreasuryDirect even right now.

And what they will find is that any American who wishes to can start investing directly in U.S. treasury securities with the Treasury Department by opening an account right now with TreasuryDirect.

And all that you need in order to do this is a separate bank account into which you can redeem your Treasuries when you sell them back to treasury, and of course out of which you can pay for your treasury securities when you buy them from Treasury.

So what I suggested way back when and what I sort of got particularly urgent about back during the COVID epidemic when they were trying to figure out ways to get money into people's pockets really quickly was, well, what if we cut out the middleman, so to speak, cut out the requirement of a private sector bank account and just allow people to hold dollars, which after all is another kind of government security, along with their treasury securities, in other words, Federal Reserve notes, along with their treasury notes in their treasury direct accounts, their TDAs. And what if, moreover, you could actually access this platform through any sort of smart device, including a smartphone?

And what if in addition to that, we added what I called at the time a kind of horizontal functionality to the presently available vertical functionality, by which I mean, what if we enabled you not only to transact with the Treasury Department by buying and selling Treasury securities through TreasuryDirect, but also if we enabled you and I, Steve and Bob, to transact together. I could pay you or you could pay me out of these same accounts or into these same accounts.

What we would have then, of course, would be a publicly provided digital savings and payments platform, all of which could be functional in a manner that allowed for transacting in real time, in other words, real time clearing and settling.

I contacted USDS and asked how long would it take to convert treasurydirect to that kind of system? And they said, can you Call us back in a couple of days. We'll do a quick kind of look into this.

And note that this would then not only render all cryptocurrencies and stablecoins superfluous, at least if we consider them to be warranted only by the justifications that are commonly proffered by the industry, but it also, of course, would have rendered private sector banks as payment intermediaries, superfluous as well.

And so that's the subject, of course, of the citizens Ledger book that we talked about then. And I'm only re upping it now again, because it seems to me we ought to keep in mind that this is still out there. It's still easy to do.

It would be very easy to affect this within just months.

And given that fact, we're much more than justified, I think we are required to view quite skeptically the commonly proffered justification for this industry's very existence.

So I'll pause there because of course that is going to lead us to a discussion of what is really motivating, I think the existence of this industry, given how superfluous the proffered justification is against the backdrop of what I've just re upped.

Absolutely. I think for the listeners out there, I don't want to take you too far afield right now. That's my only concern with the next question that I have.

So I just want to pocket it, but I want to put it out there that there is an ideological framework that is driving this. It's not just sort of, you know, technical.

I mean, there, there is an entire ideological framework from the current administration and those who support this on their end that I think is important to suss out. It's kind of like, you know, what the motive for doing it is, and then you can appreciate what they might be seeking for outcomes.

So I think that that's something I want to dive into in a little bit. But please proceed with where you were heading with this, the next step.

No, I'll do that, too.

I mean, in other words, we can kind of pivot, I think, fairly easily from the proffered justification that's typically given to what's really driving it on the one hand.

And then when we talk about what's really driving it, we can kind of partition the drivers, you might say, into sort of two classes on the one hand, pecuniary drivers, you know, profit motive, what have you.

And then on the other hand, kind of ancillary ideological drivers, which of course, you've already set us up for with the reference to Hayek and this kind of quasi libertarian complex of thought that's sort of always out there as part of the American mythos as well, especially among some of the Trumpsters now, some of those who are close to the administration.

So let's start with being a good Marxist, as I am, I'll start with the profit opportunity drivers here and then pivot from there to the ancillary ideological sort of buttressing or sort of further support or rear guard type support. In addition to that, couple things worth noting just to sort of set the kind of let's call this the monetary groundwork.

So if you think in terms of a money or a currency, right. It's traditional, of course, to divide money into sort of three functions.

And I'm not going to do the ritual repetition of the three functions that the orthodox economists always point to. Instead, I'm going to draw a distinction between two features of money that I think are going to be most salient for our discussion.

So first off, money indeed is a means of payment. It's a means of exchange. It's a means of purchasing something. It's essentially a kind of transferable purchasing power, right?

Which is kind of important in any exchange economy and certainly in a monetary exchange economy such as our own.

And it's that particular function, of course, a very basic function of a currency that's being sort of alluded to or sort of channeled when the usual justification is given for this growing cryptocurrency or payment system industry or the sort of new sub industries within the payments system industry that I referred to earlier.

If this, of course, were the only function of a currency or the only function of a money, then I would think that even those who are kind of boosters of or who are sort of gung ho about the crypto industry or the stablecoin industry or whatever would be on board with the digital Greenbacks plan, the citizens Ledger plan that I talked about a moment ago.

Because essentially what I've just noted is a plan that would make payments much simpler, much easier, much more efficient, and indeed would eliminate what currently amounts to a form of friction in transacting, which therefore slows down transacting, which therefore slows down economic growth as we commonly measure it, and so forth.

But in fact, there's an additional sort of characteristic that comes to inhere in any money once it attains wide currency, pardon the pun, once it comes to be used widely, and that is that because it is effectively a kind of stored purchasing power, it can also, of course, become a speculative asset. It can be something that can become more valuable, so to speak.

It can grow, in other words, in its own purchasing power in the interval that you're not actually spending it or using it to purchase. Right.

In other words, anything that you might use or sort of pay in exchange for something else can, within some time interval, come to be worth more of that something else than it was at the beginning. It can also, of course, become worth less. That's what we call inflation.

But in circumstances, or in times like our own recent times over the last 20, 25 years or so, where deflation is a serious threat, and indeed has lately been, or has at least in recent years been a more serious threat than inflation, we find a motive spreading to sort of hold certain kinds of assets with a view to their being artificially grown in value.

And I think one way of looking at the sort of cryptocurrency industry, if we can call it that, or the cryptocurrency and stablecoin interests out there is essentially as the growth of entities, and of course of the growth in the population of individuals on the one hand, and the growth in the number of entities on the other that are essentially operating pursuant to business plans that involves buying these nominally payment type assets and holding them as speculative assets low and then selling them high. In other words, it's essentially another speculative financial sub industry, right?

Because it is focused on a quote unquote asset that purports to be a payment medium, in other words, a currency or a money. It can sort of disguise itself as something that's not speculative, but it basically just is speculative. At least that's the primary driver of it.

And that's why, of course, the Trump family is now suddenly into all of this.

And it's why a lot of these other, well, some of the others who are close to the Trump administration or even parts of The Trump administration are sort of gung ho about it, right? It's in other words, just the latest junk bond, the latest subprime mortgage related instrument, the latest speculative derivative instrument.

It's just another one of those. But it enjoys a particular advantage compared to those, at least at the moment.

And that is you can kind of market it as something that's much more basic and something that's actually, you know, in some sense necessary, since after all we need payment media in an exchange economy.

At least we ignore the fact that there already is a payment medium, which is the kind of lingua franca payment medium in this country and has been from the very get go, namely the dollar.

But if you, if you can get people to forget about that or if you can get them to think that somehow the dollar is being debased or it's not reliable because we're in the midst of a hyperinflation, which is kind of a comical way of describing things right now.

But if you can get people to kind of think that way, then of course you can get them to think that there's an actual purpose to stable coins or an actual purpose to cryptocurrencies, that it's not merely a speculative asset, that the sort of secondary market aspect of this thing is not really the driver, it's really the primary market aspect of it. That is to say the sort of, the actual use case or the value add, which is, you know, as a payment medium.

So it's got that kind of convenient, you know, sort of attribute. Note that there was a sort of similar story that could be told with subprime mortgage related instruments 20 some odd years ago. And that was that.

Well, they're associated with real estate, you know, and real estate only goes up.

Until they short it.

Right, exactly right. Junk bonds, I think, were a harder one to sort of justify by reference to some sort of underlying real value story. Right.

They were more transparently magical in their, in their justifications as, as proffered in the, in the 80s by, by people like Michael Milken. But, but with subprime mortgage related instruments you could again, you could tell a kind of real value story in addition to the speculation story.

And if you could kind of emphasize that one, you could make it all seem legit and on the up and up and it didn't seem like it was just magical or just purely speculative or extractive. And I think something very similar is going on with crypto and stablecoins now. Right?

They, they, they're hoping the people who are the boosters here are hoping that you think in terms of, well, it's an exchange economy and we need a medium of exchange. That's a very basic thing.

And since you can't rely on the dollar anymore because it's being debased and we're in the midst of a hyperinflation, you know, and everybody ought to be getting gold or something else that's more reliable, it's a great way to kind of market the damn thing. I'll pause for a breath, but this dovetails in turn with the ideological story that I think you're sort of alluding to when you mention Hayek.

But I want to make sure that there was nothing sort of incoherent or obscure in what I just now said.

The funny part of this whole thing to me, and I don't know if it's funny or not, but the idea of getting these competing currencies in like less sophisticated circles is always like a get rich quick kind of scheme. But on the other side of this, it's kind of also targeted. I mean, if you think about it, the dollar only loses its value, so to speak.

And I don't even think that's a good way of saying it with the dollar only loses its standing when the corruption of the country, which is rife by the way, and the currency is rejected outright.

And so the collapse of the United States based on some horrible nuclear disaster or foreign entity taking over the country, or just the collapse of the government and everything else, these kind of fantasies that, you know, while in some ways may be great because hey, let's get rid of this neoliberal horrible apparatus, let's bring about a social state that serves the people, whatever. That's not what's lurking around the corner.

The side that would be the quote, unquote good guys, if you will, is very, very overmatched at the moment. They haven't spread the word, they haven't built up capacity outside of it.

So anything that even smacks remotely of hey, let's get ready for collapse is very, very much.

I don't want to get too hyperbolic here, but that kind of right wing, libertarian minded approach to things, it's all based on a fantasy of the collapse. And they're always preparing. It's like the prepper again.

I don't even have anything bad to say about people who are trying to be prepared for whatever. I this is more of an ideological one where these folks are all about me, myself and I. They're not there for the good of the public.

They're not there for all workers. They're not there for any of that. They're there for their own selfish profit.

You know, that ideological framework, the driver behind this, I think the thing that catches my attention the most, because it's based on fantasies and quite frankly, watching some of the insane things that have been going on of late. Maybe there is like a managed collapse of sorts trying to take place. I don't know. I mean, I really don't. I don't want to be hyperbolic.

I don't want to get into that kind of hot take area. But I mean, that is what you hear. They're anticipating this diet won't be any good if the government clap. Well, no kidding, no kidding.

Because government is. That was the word I'm looking for.

The thing that provides the legitimacy of the currency because it has the ability to defend the currency and it has the ability to create laws and such that defend the clearing of payments and settling of debts. Anyway, I just wanted to make that point.

Yeah, no, I think it's a really important one, Steve.

We do tend to overlook, especially in countries, or maybe we should say in sort of intellectual cultures that have at this point, fairly long standing histories of denigrating collective action and instrumentalities of collective action, of denigrating the state or denigrating any kind of centralization of authority or power, even for purposes that require collective agency.

In other words, for purposes of dealing with classic collective action problems, which by definition can only be dealt with through exercises of collective agency, this becomes then a common form of fantasy or a common mode of ideation or imagination in, you know, sort of times of trouble or times of difficulty.

It also, of course, is very easy in such a culture to kind of overlook the sort of, deep down, joined at the hipness of any kind of universally usable currency on the one hand, and state capacity on the other.

Generally speaking, the geographical range, or in a more metaphorical sense, the spatial range within which a particular currency is usable and can sort of serve as the sort of primary stable reference point by reference to which even so called stable coins are kept stable. That range is in general is basically an historical truism, because it's a conceptual truism.

That range is determined by the range of effective state capacity, right?

So the broader the range over which state capacity can be exercised, the broader the range over which that particular state's issuance can be used and will be used. It will be relied upon as the lingua franca. And there's a kind of symbiosis here. Too, which it's important to keep in mind.

In other words, the direction of causation is bidirectional. Because on the one hand, a kind of widely usable currency sort of presupposes a certain degree of state capacity.

On the other hand, that state capacity is itself in part a function of the usability of the recognizability of, and indeed just the outright use of that state's issuance, that state's currency. And indeed, it's precisely for that reason, right.

That we get the first nationally issued currency, the first nationally issued dollars during the Civil War period.

But it was also realized that the only way to kind of fully finance that effort on the part of the union, to remain a union, and hence to sort of complete the actual full integration of the country into a single country was to nationalize the banking system and to nationalize the currency too, right?

Because as you know, what was being circulated and what were being used as payment media before the Civil War were a bunch of distinct privately issued private sector banknotes, right? And that system didn't work out very well.

And it certainly didn't lend itself, another pun sorry, didn't really lend itself to a fully integrated national market, right?

So I mean, it's not an accident, right, that to have an actual national market you have to have a nation, and in order to have a nation, you have to have a state.

You have to have, in other words, some instrumentality that operates at that national level in the name of all of those who partake of that nationhood, right. Who are part of that. And again, the Civil War itself kind of dramatized this.

Yes.

Now, given that symbiosis, given the fact that state capacity depends on the one hand on a national currency for its completion, while the effectiveness of a national currency requires state capacity, at the same time it becomes kind of easy to undermine either the state or the state's currency from either side of the relation, right? Because they're both mutually dependent. They're dependent on each other.

So you can kind of undermine the complex from either end, or let's say you can't undermine the dyad from either side or from both sides, of course.

And you can sort of see this, I think, in a lot of the rhetoric and a lot of the sort of political strategies that are employed, right, by those who are sort of gung ho about the growth of crypto and the growth of so called stablecoin issuers and so forth. On the one hand, they'll attack the state itself or centralization itself.

They'll call it communism, they'll call it Marxism, they'll call it, you know, some kind of fascism.

They'll call it dictatorship, they'll call it tyranny, you know, all of the usual sort of slurs where they'll attack the institution of collective agency, the most inclusive such institution of collective agency, namely the state itself or the government, which is just another name for that collective agent. Or they might attack the currency by saying, oh, the dollar's now hyperinflated, the dollar isn't reliable, it's been debased.

You ought to buy gold, you ought to follow Peter Schip or whatever the hell, or do both, right? And of course, we see all of that. We see some people who sort of focus on denigrating the dollar.

We see other people who focus on denigrating the government.

And then we see some people, some of whom might be slightly more sophisticated in that at least they recognize that these two things are joined at the hip conc and practically, who attack both at the same time, who will say, you know, sometimes by reference to, you know, the sub instrumentality known as the Fed, right?

So they'll say, oh, the Fed is, you know, the Fed is, is a conspiracy or the Fed is, is some kind of a, the product of some kind of a silent coup or a putsch or something. And the Fed itself is debasing the currency and it's illegitimate.

And it should be ended as, as Ron Paul has always told us, you know, we should end the Fed or we should end the Federals, the Federales, we should end the federal government itself and we should also sort of end the dollar as its issuance. And I think that that's a big part of this story.

All those kind of Randians or Neo Randians or Neo Hayekians, basically the crypto boosters who want to think of themselves as intellectuals or people who have sort of uncovered a dirty little secret that the rest of us haven't realized yet. Blofeld yeah, that's the route they'll go.

One of the things that lends some credence, not only ironically the libertarian fears of collapse, but also the state capacity required to maintain a currency. Yeah. Was the hyperinflation that the south experienced during the Civil War.

And there's an opportunity to see how when you don't collect the tax payable in your currency to maintain its monopoly power and you don't actually enforce those kinds of relationships, you end up setting the stage for the actual collapse of your currency. And I don't know whether we can really say the south lost, given the way it looks in modern society today.

I mean, it may have just been a long end around, but if you look back, I mean, let's be fair, the Confederate dollar completely collapsed. It was a complete failure. And it was a failure because it didn't have the needed structural elements of backing with attacks, etc.

They ideologically couldn't get their head wrapped around it.

That right there is an explanation that I think people can hold on to because it happened in this country even though we may not like the people that did it.

Can you just sort of overlay a little bit of the collapse of the Confederate dollar as part of a hyperinflation that these people are screaming, mad worried about the US Dollar hyperinflating, blah, blah, blah, currency rejection. Can you just sort of weave that in?

Because I think that is key to some of the logics that people hold onto as part of their monetary conspiracy laden thoughts.

Yeah, yeah. What a great question, Steve.

The way I tend to view the collapse of the Confederate currency, which began pretty early on, the sort of inflation followed by hyperinflation of the Confederate currency, there's two Ways that I think are sort of helpful to look at. The first is the easiest way so we can dispatch that one quickly, which is not to sort of downplay its importance.

It's so important that it's really easy to see and so it doesn't really require an awful lot of laying out.

But basically you can view it as a partial proof of what we've just been saying, that essentially the south didn't really have the capacity to be a nation state. And insofar as it lacked that capacity, it lacked the capacity to maintain a stable currency.

So the project of a Confederate currency by definition virtually was as doomed as was the product of a Confederate States of America as an actual nation state.

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It simply did not have that capacity. That was partly owing to the fact that it didn't have the sort of requisite degree of diversity in its economy.

It was a sort of staple economy, almost a single crop economy by and large, which doesn't really make for a powerful and sustainable national project.

And if you note moreover, that the entirety of the labor force basically was enslaved and the greater part of the population were themselves slaves, you can sort of see it. It was essentially more like a pirate colony or some pirate state than anything that could actually function as a separate state.

And insofar as that was the case, again, any currency issuance that it would try to engage in was doomed from the get go, just in material terms, for the very reason that the state itself or the so called state itself was doomed in material terms. The second thing though, that's worth noting here because now this is actually salient for the present.

In other words, this second way of viewing this is quite relevant to the project of the US as a nation state, is that it was an ideologically incoherent state as well, and therefore its currency was doomed.

And what I mean by that is that insofar as there was a would be national story or mythos or sort of national narrative or national self identification that was constitutive of southern identity, at least where we're thinking in terms of a Confederate States of America when we use the term Southern, it was a largely quasi feudal, quasi libertarian ideology. In other words, we're going to be everything that the character of Washington that we're calling Washington is not.

So there's not going to be great central authority. There's not going to be integration of this so called nation state known as the csi. There's not going to be a powerful central government.

When we went the Federalist route rather than the anti Federalist route, the CSA was in essence, at least one aspect of it that's worth highlighting here is that it advertised itself as the road not taken, right? That back at the time that the United States itself was formed, we could have gone the Federalist direction or the anti Federalist direction.

In other words, there could have been a powerful central government that would operate as a sort of integrating force, both a politically and hence an economically and financially integrating force. Or we could go the so called anti Federalist route, which would be very non centralized, very decentralized sort of governance structures.

And our claim as confederates is that we should have gone the antifederalist route.

And that's why we're calling ourselves the Confederate States of America rather than the United States of America. But that was again internally incoherent because you can't actually have a single stable national currency without a single stable nation.

And you can't have a single stable nation without some mechanism of collective agency through which that single nation can operate. But the whole essence of the project of the Confederate States of America was to be somehow an anti nation nation. You see what I mean?

It was to be a non United States. Again, performatively internally incoherent. But it's performatively incoherent because it's conceptually incoherent.

It's a bit like saying we're going to draw a round square. That's just a misbegotten project. It's not actually a project at all. It's not a coherent thing. Thing.

And so I think that the reason that that aspect of the failure of the Confederate currency as an aspect of the broader failure of the Confederate States of America, why that aspect is relevant to the Present is that of course a lot of these so called neo Hayekian and Randian and so called anarchists or anarcho utopian critics of the dollar and of the Fed in the U.S. the sorts of things that they're sort of enunciating and the kinds of things that they're claiming are essentially the same things, right, that the so called founders of the Confederate States of America were proclaiming. It's just another bite at the articles of the Confederation apple, so to speak. Again, that's just not coherent.

And if too many people listen to them, then it can be quite dangerous.

Of course, because the other aspect of a currency and actually useful and widely used currency that we haven't addressed yet, but it's always in the background anytime we talk about a currency is the self fulfilling prophecy aspect of a currency, or of trust more generally, as a kind of a social solvent or a social bond.

If enough people start actually losing confidence in a nation state as a project, or in its currency as an instrumentality of that project, then that loss of confidence can turn out to be ex post justified precisely because of that recursive characteristics that any currency has, that there's a sort of self fulfillingly prophetic element in its success or its failure.

In my education of economics, which obviously pales to yours.

But just as a aside, the idea of the tax as the necessary obligation to maintain that currency and obviously the course of force that goes into defending the tax, sure, you can have confidence, but at the end of the day you lose your confidence and you go to jail for not paying your taxes. It doesn't matter really. So where does that balance come in?

Where it comes in is that the taxing authority, and even the capacity to enforce the taxing authority is also a function of confidence or of belief, or of sign up or sign in or how should I put it, kind of buy in, I guess we could say to pun yet again, or at least have come dangerously close to punning.

If the project of seeking to undermine confidence in the state or in collective agency itself, or in the nation as the nation, if that project or that long term attempt at undermining goes far enough, it undermines not only confidence in the currency, but it also undermines the legitimacy of the taxation authority itself or the taxing authorities themselves.

And you know, in this context it's probably worth noting that even if the IRS were given the same resources that it appears ICE is now to be a given, it's still it's impossible to have 100% compliance if it's reliant entirely on actual enforcement.

There has to be not only, I think, fear that one might be arrested or prosecuted or whatever, but there has to be a widespread belief in the overall legitimacy of the project and of the government itself as our government and the state as our state and so forth.

Another way to put this is that at least historically and especially in recent decades, the number of actual prosecutions of tax fraud or actual enforcement actions by the IRS just pales as a percentage of the actual number of acts of compliance with the tax laws by the general public.

And while people's complying with the tax laws is partly a matter of not wanting to attract the attention of the IRS or not wanting to get into trouble, I think a lot of people just do it because they think of it as just part of what it is to be a citizen. It's part of what it is to be a part of this big family, so to speak.

And if people were to lose belief in that to the degree, that's probably a better way of putting it, because it's variable at any given time how large a portion of the population believes in the country as a country, to the degree that belief in or acceptance of the legitimacy of this as a single nation state is eroded or deteriorates to that same degree, or to some corresponding degree readiness to pay the taxes. And actual compliance itself tends to diminish as well as, and that's the case even with a well resourced irs.

So I think that that's another piece of the story, Steve, that's perhaps kind of important here, that when the kind of Hayekian types or Randian types undermine belief in the legitimacy of the state as a project or the government, as our government, they not only undermine belief in the state and belief in the currency, and hence confidence in the state and the currency, but they can actually undermine the actual value of the currency.

And then via another mechanism that operates sort of simultaneously, and that is if the tax take itself diminishes because people comply less, then of course it's a lot easier for inflationary pressures to start to build up, you know, as in undermining the currency.

Because of course, as you and I know, another big function of the taxation system is precisely to drain some of the purchasing power out of the economy when there are inflationary pressures on the currency.

Yep. Let's dive into Hayek, if you don't mind, really more specifically what his view on currency was and the decoupling of it from the nation.

I mean, specifically what were his stances?

Well, I think it's easiest to understand Hayek as just sort of part of that broader Austrian school of thought.

He was, of course, one of those Austrians, just happens to be better known than most of them because he left earlier and some of them never left at all and became part of the kind of Anglo American world.

But the basic idea was that any money as essentially a part of the economy, and the economy really should be viewed as a sort of sphere of human activity or endeavor that's completely distinct from and kept as far apart as possible from the state or from politics or the political realm. And that therefore, monies ought to be privately issued, just as production should be privately organized and privately arranged.

And there was the usual magical thinking about the magical powers of markets to self regulate and maintain integrity of all products and quality of all products, including currencies, in the same way that the market would virtually guarantee that products like automobiles or lamps or laptops are of high quality because people simply wouldn't buy the low quality things. Over time, the story went, the lower valued or lower quality currencies or payment media would also be driven out.

Right, because people wouldn't use them if they tended to lose value or tended to be unreliable. There are many problems with that kind of view.

But I think probably the most salient for our purposes, particularly given the deep connection between money and time that Keynes sort of famously underscored and emphasized, is that within a very short span of time, a low quality product can prove massively catastrophic.

In other words, long before there is time for the lack of quality to surface and for people then to kind of flock away from the low quality product, everybody can be dead or killed by it, right?

It'd be one thing if every consequence that flowed from a low quality product flowed slowly from it, so that everybody had time to kind of survive the low quality product and then flock away from it and then thereby in effect drive it out of the market and bring about its replacement by a higher quality product, then we'd have no difficulties, no problems.

But what these guys ignored, of course, was a classic type of market failure that even orthodoxy is able to comprehend, which is that there are some products that are in effect public goods or that have in effect Network effects.

And anywhere where you have a product that has a sort of a network effect, you have a product that has the potential to fall prey to a contagion effect.

So another way to put this then is that if a particular currency that's supplied by a particular private supplier turns out quite suddenly not to be worth the paper it's printed on after all, or not to be as reliable as people had thought after all, and everybody runs away from it, everybody sort of flees it. Well then you have a sudden freezing of all market transacting, right? There's no transacting happening anymore.

Everything freezes up, seizes up, shuts down. And that of course can be quite catastrophic. It's a classic spillover effect.

It's a classic what those orthodox economists will call negative externalities.

And the problem I think with these Austrians is they overlook even the orthodox market failures that even orthodox economists will admit to being vulnerabilities, let alone heterodox economists who are typically much closer to the truth than orthodox economists are.

But that was the basic idea Steve, is money was essentially viewed as just another product, just another asset that people might or might not make use of.

And while Rattlesnake Bank's currency issued down in the Southwest is better than Puritan Bank's currency issued up in Massachusetts, then people will flock to it and use it. It'll a be of preferable currency. And in time the inferior Puritan banks currency will be driven out of the market.

It's almost like a reverse Gresham's law, right, that they tended to think that good currency drives out bad. Right. And in doing that they totally overlooked first, the way money and financial markets actually work.

But second, classic market failures that even the most orthodox, boring, fresh and saltwater economists in the US and in other so called developed countries have recognized for ages.

Even Adam Smith, in other words, was more mindful of and I think more sort of articulate in describing and laying out the poignancy of various market failures than these Austrians. I don't know what the problem was like sort of a joke I often tell about them.

I don't know if there's truth in this joke or if it's just basically a cheap shot and you know, grabbing at low hanging fruit.

But it's interesting that the same city that brought us Freud and the Oedipus complex and hence Oedipal rebellion brought us the so called Austrian economists who seem to regard the state very much as a Freudian boy views his father, you know, something gratuitously Rebelled against and hated because he's a competitor for the attentions of the mother.

The Oedipus.

Yeah, it's just basically I sometimes refer to the Austrians as the Oedipal economists or I call it Oedipus economics because I can't think of any rational explanation for why anybody would believe the way they believe. That really requires almost a willful ignoring of reality. And I don't mean to be dogmatic about it.

I wasn't dogmatically anti Austrian when it comes to economics.

And indeed in many ways there were a lot of great insights that some of the so called Austrians, at least Schumpeter had about the way money actually works and the role that endogenous money plays in financing growth and development themselves. Right. There's some really great insights there.

But as soon as they're moving away from the positive to the normative, a lot of them become really quite ridiculous. And it's just, it's flabbergasting and it's hard to kind of come up with a rational rationalization.

So the only explanation that I can find is a sort of irrational one, which is some kind of weird Oedipal suspicion of the state.

And maybe that was partly itself brought about by the obvious dysfunctions and dysfunctionalities of the Austro Hungarian Empire as a would be sovereign project.

It's pretty hard for there to be an actual functioning sovereign in a kind of insane polyglot empire of the sort that the Habsburg Empire was attempting to be back in the late 19th and early 20th century. And maybe that played a role in it.

Maybe it was hard to view the state as even a possibility when you were living in the midst of what the great Viennese novelist Robert Musil called cochania. And if we remember what Kaka means in that language, basically excrementalia. Maybe that's a part of the story as well, but who knows?

They need their own Freud to sort of analyze them to the Kaka empire.

Huh.

And of course this is where Kafka comes from as well. And of course Kafka's portrayals of people with authority also suggest a certain skepticism about centralized exercises of authority as well.

So maybe it was all just basically a function of a deteriorating and centrifugally sort of separating empire.

Yeah, I think that there is a legitimate case to be made that the outcomes of the country, the state, whatever, are not producing results that regular people, myself included, would consider to be good. Yeah, I think that most of us look at this and say what the hell are we living through?

And to me, it seems natural that people would resent, maybe even not trust, maybe even start to see the state as more of a plantation master than an actual benevolent friend that is there to serve the needs of them and their families. So I'm, I'm sympathetic to that, right? I am very, very sympathetic to that.

But I am not sympathetic because with the current situation anyway, because it's like they're trying to have their cake and eat it too, all in the same breath. Yeah, it's a bad, bad government.

We're.

But we're the government. Bad, bad government, but we're the government.

So let's, let's bring this back to the present and in terms of this Genius act and give a kind of melded analysis of what we've just talked about with Hayek and the kind of Austrian mindedness and then kind of put a bow on the Genius act, the impact it might have on people and what they might want to really take away from not only this podcast, but as they hear more news about these things coming up, what they might want to stay focused on.

Yeah, sure, great suggestion, Steve.

So to go back to the kind of smiley faced story of the Genius act or smiley faced understanding of it, which is not completely devoid of plausibility, or else they probably wouldn't even try to foist it on us, it's basically this, they're sort of saying, okay, look, we have a private sector banking system. It is however, a kind of public private partnership really, if you look at how it works, and in particular its connection to the, the Fed.

And one product of that or one upshot of the public sector element of the banking system is that it doesn't operate quite as efficiently as it could, maybe partly because it enjoys the so called soft budget constraint and the kind of monopoly powers, and hence the complacencies that come with monopoly powers that are all part of its being sort of integrated with the state.

It's being part of a, essentially a kind of a franchise arrangement, as we've talked about before, and one realm in which it's not operating as efficiently as it might, thanks to the complacency that comes with its sort of quasi monopoly status as a state afforded franchise is in its function as a payment system. Right. That we use our private sector banking system as, among other things, a payments platform.

So we've got these competitive currency arrangements or payment platforms that have come about essentially in response to that because there's a demand for more efficient payments. And in particular what we remembered before is often referred to as real time clearing and settlement.

And so called stablecoins have been developed as a sort of response to that inefficiency.

And they're even called stablecoins precisely because in order for them to sort of play that role, they have to sort of maintain value stability in the way that the dollar its cheatively does. And so that's all good and salutary. That's a great development. However, with that development comes a danger.

And in a way it's like the old shadow banking danger.

You've got a sector that's essentially performing a traditional banking function, but that isn't yet regulated as traditional banks are, and hence is subject to certain vulnerabilities. In particular the possibility of instability, even when there is a claim of stability.

In other words, this particular payment medium, which purports to be as stable as the dollar itself, if not more so, might turn out not to be so because it's not really backed right by anything that is stable or you know, there's not really enough that's maintaining its stability for it to be reliably stable.

So if a lot of people end up using this stablecoin as a kind of alternative payment medium to the point where it becomes systemically important, that is to say, it becomes such that a lot of people running away from it simultaneously could bring about a kind of crash that is likenable to a bank run. Well then we would have, you know, systemic harm in addition to harm to the counterparties, to the individual transactions.

And in the same way that, you know, a bank run was a systemic harm in addition to a kind of individual or counterparty harm.

And so what we're going to do is we're going to regulate this industry sort of in the way that we regulate the banks, at least where stability or value retentiveness is concerned. So we're going to say that only certain pre approved issuers will be permitted to issue these so called stable coins.

And then one condition of that kind of preapproval is going to be these entities compliance with certain rules, certain regulations that are themselves designed to ensure that there is indeed some stable backup for these currencies. So that in the word stablecoin will not be a misnomer, will be federally or governmentally guaranteed.

To be truthful, that's essentially what the Genius act is sort of doing.

It has taken cognizance of a new shadow banking sector, namely the cryptocurrency sector, or the sort of subsector within that, the stablecoin industry, and brought it in from out of the shadows by now regulating it in a way that's similar to the way that we regulate the banks, at least where maintaining the value stability of the asset that's being issued is concerned. That's essentially what it's purporting to do. And there's no reason a priori to think that it can't succeed in doing that.

But there are reasons, a posteriori rather than a priori, to be skeptical about whether it would really do that. And the reason for that in turn is because it does rely on regulators actually taking their job seriously. Right?

And ironically, the same administration that's been pushing this act has been gutting all of the agencies that enforce rules and regs that we actually already have.

And so there's every reason, it seems to me, to doubt, as a sort of empirical matter, that the so called genius act actually would or will preserve the stability of so called stablecoins, or will preserve the stability of a financial system that is increasingly reliant, at least in some of its corners, on that.

But that, of course in turn sort of lends further weight, I think, to the suggestion that that's not really what's motivating the sponsors of this act in any event. And it's certainly not what is motivating the Trump family when they push it.

My guess would be they actually want there to be instability in this sector, because that's precisely where people make their money, where the financiers and where Wall street makes its money. You don't make any money on Wall street without price volatility in something, right? All of your money is made by betting on price movements.

You need prices to be moving or else you're not making any money. At least if your whole business model is focused on the secondary and tertiary markets, which of course it is.

Wall street is not any longer about financing production in the primary markets. It's all about betting on price movements in the secondary financial and the tertiary derivatives markets.

And I think that's essentially how the Trump family sees its future as well. It sees its future as being, among other things, in this same sort of realm of betting on price movements.

And the last thing you want then basically even by definition, is stability. But if you say, oh, we're regulating, we're going to be maintaining the stability of so called or self appointed or self described stablecoins.

That sounds a lot better, doesn't it?

Yes, it does.

Right then. Oh, here's yet another extraction opportunity for us and let's make sure that we can do it.

Because remember, insofar as legislation like this does get passed routinely by Congress, it preempts other kinds of regulatory action that might be taken either by subsequent Congresses or of course, maybe more to the point by state legislatures. Right.

You're essentially saying this is the regulatory regime now, and if the regulatory regime relies essentially on regulators who you are then not going to fund or you're going to bring Elon Musk into gut, well then what you've really done is under cover of regulating and guaranteeing stability, you've effectively guaranteed the opposite.

And again, the reason you would guarantee the opposite is because your whole business model is to profit on instability, which is another way of saying to profit on price movements rather than price stability.

Bob, I really appreciate the time here. Is there anything else that we should know before we part, before we close out?

Is there anything, I mean, obviously there's a million things, but is there anything in particular that you think that the listener should know before we close?

The only thing I'd be tempted to add here, Steve, is essentially just a partial reiteration or re emphasis on just the complete unnecessariness of all of this. The complete unnecessariness of any private sector provision of any payment system whatever.

A payment system, it seems to me, is the classic case of a public infrastructure.

Especially in a so called commercial society or monetary exchange economy such as our own, right, we purport to be a commercial society, a society in which commerce is definitive. We purport to be a monetary exchange economy. In any such economy, a payment system is the classic infrastructure.

It's even more essential as an infrastructure than roads and bridges and the like, or at the very least it's as important as those things.

And there's no reason, therefore it seems to me, not to provide it publicly, it can be publicly provided much more efficiently, much more cost effectively, and dare we say it in this context, much more stably than it can be privately provided.

And insofar as we rely on private providers, be they banks, as we have been relying on for over two centuries as the primary infrastructure for our payment system, or be they new payment platforms like PayPal or Venmo, or be they new cryptocurrencies or stablecoins which are sort of part of that same kind of ecosystem. All of these are suboptimal attempts at private provision of essential public infrastructures.

And that means that they're inherently less efficient, they're inherently more costly, they're inherently more therefore deadweight loss, imposing on commerce itself and hence on economic growth itself.

And they amount to, as I mentioned in a little message, when we were sharing messages back and forth a while ago, yet another case of a kind of lawyer and financier Full Employment Act.

The more of these things that we let the private sector do, and hence the more regulation that we necessitate, in essence, to make the private sector look more public in its functionalities, you know, the more money we just waste on basically, lawyers helping people navigate this increasingly complex and baroque sets of rules and regs that, again, I can't emphasize too strongly, are completely unnecessary.

We could do all of this on everybody's smartphones, simply through the Treasury Department, essentially by letting everybody open a Treasury direct account that is not only a space where you can buy and sell treasury securities in vertical transactions with the Treasury Department, but also dollars and also horizontally with one another, in addition to vertically between us and government instrumentalities.

If we would just do that, it would be amazing how much more economic growth, how much more equity we would have, it seems to me, even data privacy and safety.

Because of course, we would now have Fourth Amendment protections of our data that do not apply to private sector financial data collectors and transaction data collectors, which all of these entities also are. Which is another aspect of this story.

I had no intention of taking us here as we're trying to close out. But I do have to ask you, the idea that the fourth Amendment has stood up.

I mean, I'm not here, yeah, I guess I am here to undermine some of our institutions as they show a dereliction of duty. I mean, look at the Supreme Court these days. But yeah, I mean, I think it's just mask off kind of moments.

But is the fourth Amendment really intact anymore? I mean, is the fourth Amendment actually protecting people or is it a false positive? Is it a placebo?

No, that's a great question, Steve. And it is far less protective than it was.

Any law students, after the first year, at least once they've had criminal procedure, will be able to tell you that the fourth Amendment became ever more protective over the course of the 60s and 70s. And.

The Constitution itself is just not what it used to be, because the Supreme Court sort of isn't what it used to be.

And that's, of course, what leads me to think to some extent, all of our conversations about any new laws are to some extent parlor games or to some extent kind of Parisian cafe conversations where we're wearing berets and smoking Gitanes.

It's all, in a certain sense, the theoretical discussion at this point, because the law itself becomes sort of meaningless when there is no rule of law. And one way of macro describing what's been underway for the last while now has been essentially a steady erosion of the rule of law itself.

All of that might sound a bit remote and orthogonal to what we've been talking about, but I actually think it's right at the top core, in a certain sense, of what we've been talking about over the last hours.

I see it right in the center. I agree with you.

Yeah, it's one way of maybe completing or adding some necessary perspective to this conversation, one that's been such a joy this past hour or so will be to come back to just what the rule of law is, what the state is, what the state could be, what it should be, what it is now, what it has been. And the person to talk about most, although not exclusively here, is Lennon.

I think in his very intellectual trajectory, we sort of see anticipated, I think what is going to have to be our own intellectual trajectory in the years ahead.

Very, very well stated. All right, real quick, I want to thank my friend Bob Hockett for joining me today. It's been far too long.

I appreciate you making time for me and our audience here and just so you all know when this episode comes out on Saturday. The following Tuesday is what we call Macro and Chill. It's a get together, right? It's where we get to talk to each other in a webinar fashion.

And sometimes we have the luck and the blessing of having our guests join us. And Bob has graciously agreed to be a part of that.

So the Tuesday after this releases and since I'm recording it right now, I'm not exactly sure when that will be, but I'm sure once you hear it, you'll know. Hey, there's the episode. It's coming up Tuesday, right? So join us. It's 8:00pm Eastern Standard Time, 5:00pm Pacific.

The link will be all over the place. It'll be in Substack, it'll be in our website, it'll be all over social media.

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All right, without further ado, on behalf of my guest Bob Hockett, myself Steve Grumbine, Macro and Cheese, we are out of here.