Colored Property & State Debt with David Freund

In this episode, we talk with David Freund, associate professor of history at the University of Maryland. David is the author of Colored Property: State Policy and White Racial Politics in Suburban America, an award-winning book that tracks how the language of racial exclusion was re-coded in terms of markets, property, and citizenship in the post-World War II era. Throughout the conversation, David speaks to his research on the history of public policy and economic ideology in the United States, and the role that heterodox economic thinking has played in shaping his research agenda. We talk at length about Colored Property, as well as his current book project, State Money, which offers a history of financial policy and free market ideology that unveils the repressed role of the state in the making of modern America.

David Freund recently published a chapter in the edited collection Shaped by the State, titled “State Building for a Free Market: The Great Depression and the Rise of Monetary Orthodoxy.”

Freund also recently publish a piece, titled “Money Matters,” on the role of money in historical inquiry for The Metropole.


The following was transcribed by Richard Farrell and has been lightly edited for clarity.

William Saas: David Freund, welcome to “Money on the Left.”

David Freund: Thank you. Very nice to be here.

William Saas: Can you start us off by giving us a brief summary of your personal and professional background?

David Freund: Sure. I am a child of Los Angeles in the 1970s–the suburbs of Los Angeles–and attended college at U.C. Berkeley. After working in publishing, journalism, and food service, I started a PhD program in European history. Then I switched to study the United States and wound up writing a book about–go figure–the politics of white suburbanization, white flight, and racial segregation. One other thing that might be of interest is that I was technically trained as a cultural historian. I was studying in the 1990s, when the field of what’s now called “whiteness studies” was taking shape. But I also had a deep interest in political economy, which stemmed in part from my long term interest in the origins of capitalism. And this has clearly come to the fore in my work, both in my first book and in the new project, which is called State Money. Since writing the book on white suburbanization, I’ve been working on the history of financial policy, the history of money, and powerful myths about money and the state. That’s the anchor of what I’m doing right now.

Maxximilian Seijo: You sort of reference it there, but we’re wondering what questions or problems in historical research brought you to the study of money and to heterodox economics in particular?

David Freund: Right. My first book–Colored Property–is centered on a story about the federal government’s role in creating a racially segregated housing market in the United States after World War II. Many people might be familiar with the story of the Federal Housing Administration and redlining.  Both topics have in recent years become a focus of public discussion, which is pretty exciting for those of us who study it. 

Ultimately, it’s a story about mortgage lending and the creation of debt instruments. And while writing that book, I was really struck by conventional treatments of debt. Specifically, economists and most historians described debt, and still do, as distinct from money. And meanwhile they argued that neither money nor debt were essential to the productive process. In other words, they insisted that growth–economic growth–was solely a product of a bunch of “real sector” variables, like access to resources, technology, demand, and the like. Then they argued that money just helps people organize those variables by facilitating exchange. Money, in their narrative, is a commodity token, while debt helps people make contractual arrangements to exchange these tokens.

In this conventional story, the real action in the economy is coming from individuals’ choices about what they want to make, buy, and sell. Meanwhile the financial instruments, like mortgage contracts, are sort of like props. And it follows that if the supply of financial instruments is just right, it makes the real sector processes go smoothly. 

Now, I’m not trained as an economist, nor was I trained as an economic historian, yet, as I was encountering this story about money and debt, it seemed very odd to me. The documentary evidence showed me that government policy was creating debt instruments and that those debt instruments were creating conditions under which new homes were literally being built. Public policy was creating wealth. Meanwhile, I saw how those policies explicitly channeled that new wealth primarily to white people, especially to white men. People of color and single women were usually denied these new mortgages and this was by federal mandate. 

To me, that suggested that the government was creating wealth for some and not for others. Again, I’m just an historian. I’m not an economist, right? But economists, and plenty of historians, were disagreeing with me and they still do. They argue that by insuring loans, the federal government was merely helping to unleash the market forces that produced wealth in housing. And they argue this because they insist that money and debt are not intrinsically productive. 

That’s the origin story of my current project. Since completing Colored Property, I’ve  become a student of monetary theory, 20th century monetary policy, and the relationship between financial policy and popular ideas about money. In this new book, State Money, I’m arguing that our persistent myths about money are deeply intertwined with the politics and policy of finance. 

One more note on my first book. In Colored Property, I argue that myths about housing segregation, such as the myth that it’s not about “race” but rather about “economics,” have been created in large part by the very policies and politics that segregated housing in the first place. In this new book, I’m exploring, as a comparable dynamic, the larger topic of popular myths about money.

Scott Ferguson: Just to follow up and clarify, is it your sense that both historians who don’t necessarily foreground their politics and historians that are more critical, or even Marxist, all fall into this trap of seeing the histories that you’re tracing in this particular way?

David Freund: A qualified “most,” I would say. There are traditions of historical writing that are very attuned to money’s credit function, especially work on the “long” 16th century, most famously the writings of Fernand Braudel. There are economic historians, like Charles Kindleberger and John Kenneth Galbraith, who have written about this and have always been kind of held on the margin. And there’s also a newer generation of scholars. For example, Chris Desan’s Making Money is essential reading on this subject. Early Americanists and historical sociologists are doing very exciting work on debt markets, banking, and popular protest over currency reform. However, those are the exceptions to the rule. By and large, people writing about 20th century economic history and development in the U.S. are very much wedded to an orthodox or neoclassical model of money.

William Saas: It seems like you’re pretty convinced that historians of all stripes can learn from heterodox economics. Do you think they can especially learn from this field? And, if so, what do you think they can specifically take away from things like post-Keynesianism and Modern Monetary Theory?

David Freund: That is a big one and it is potentially boundless. It’s what I think about most of the time when I’m not thinking about other things–because historians generally work from orthodox or neoclassical assumptions about the economy all the time, even when they’re not citing the work of economists or invoking their findings. It’s sort of the pool that most people swim in intellectually. 

And this points to two big takeaways that may be useful to answer that question and to get historians to recognize why it’s important to consider these challenges. The first one is my standard appeal to historians. Namely, orthodox economic models are grounded in a story about finance that did not happen and [this fact] should really upset them. We cannot document historically an origins story about money and credit that continues to undergird basic textbook economics. Most economists insist that money has its origins in barter and that credit forms developed later to further facilitate this barter-like exchange. Yet we know that this is not true. 

Archeologists, sociologists, a core of European historians, and a bunch of historically minded economists have persuasively documented this for generations. As listeners of “Money on the Left” know, it turns out that money has its origin in debt instruments–basically in IOUs. Yet when orthodox economists are presented with this evidence, they say, in effect, “No, money must have its origins in barter because that’s what all the models are based on, so we are sticking with it.” Again, historians should not put their trust in an economic conceptual universe grounded in a fiction about money. That just does not make sense.

The second big takeaway hits home because it speaks to so many people’s research agendas. It is that economic heterodoxy–and we could talk about the range of debates within post-Keynesianism–but, in general, economic heterodoxy explores the very fluid boundary between the so called public and private sectors. It demonstrates–and this is important for scholars in so many subfields–that modern economic systems are inseparable from state structures. We can talk later about my current work on American financial policy, but the larger point is really inescapable. Never in the history of capitalism have there been purely free markets for anything. That is pretty profound and challenges a lot of conventional wisdom. State authority, and moreover state resources, have always been integral to capitalist growth and the allocation of its benefits. Heterodox traditions of economic thought have always reckoned with this and they provide the tools, I think, with which we can better understand that fluidity and expose it. 

That’s one way of answering your boundless question in terms of categories, rather than with specifics.

William Saas: Boundless and motivated. I have to say, the two points that you have described I have found relevant, especially considering my own writing and research on this stuff. In the field of rhetoric, and I’m sure this is also true in history, is how can we make a compelling case about what heterodox economists can learn from historians and rhetoricians and other humanists?

David Freund: Well, yeah, do you want me to speak to that?

William Saas: Please.

David Freund: Again, boundless. I’ll answer this one with an anecdote. For about ten years I have had extensive discussions with heterodox economists . . . And I’ve discovered a few places where they have blind spots, because they are more focused on the mechanics of contemporary financial markets. Sometimes they have overlooked what I think are key transitions or formative moments in the history of federal debt creation. In my case, it’s about the creation of federal debt during World War I and how this leads to a fundamental transformation in the Fed’s operations. It’s not that [heterodox scholars] don’t know about this. It’s just that they haven’t devoted that much time to it, in part, because they’re focused on a different set of questions. 

So, yes, it’s one of the countless places where heterodox economists can learn from us. Most notably, I think, there’s a huge debate among folks who work on the relationship between the public and the private and between public and private money. I’m still sorting through this, sometimes in real time, sometimes in my head, with MMTers. So I think there are a lot of places where we can learn from each other. Is that diplomatic? 

Scott Ferguson: It was.

William Saas: Well done.

Maxximilian Seijo: To dive in a little bit to your first book, which you’ve already glossed over nicely, Colored Property: State Policy and White Racial Politics in Suburban America, I was wondering if you could explain for us and for our listeners how your attention to money and debt instruments in the book complicate our understandings of mid-20th century American racism specifically?

David Freund: Right. Interesting. This is great. My answer to that question now is far more developed than it was when the book appeared in 2007. At the time, I presented it in sort of lay terms, arguing that federal programs, by insuring debt, created wealth for whites while simultaneously popularizing the narrative that government assistance was not creating wealth and that it was not segregating neighborhoods. And thus, that it was not impoverishing people of color. Basically, I argued that the programs masked the racial assumptions that structured a new market for housing. 

Since then I have taken a deep dive into the world of financial markets and the mechanics of money, so now I can put a lot more analytical meat on those bones. Here’s how I would describe it now. Federal credit policy–the operation of selective credit programs–most famously the Federal Housing Administration manufactured financial assets, namely home loans, that otherwise would not have been created. [These programs] enabled private lenders to create checking deposits, and that’s how money is created by private institutions. [The government] did that by promising to pay off those loans should the borrower default. So, the U.S. Treasury promised to cover bankers’ losses. Naturally, bankers said, “Okay, I’ll take that risk.”  

Obviously, it wasn’t much of a risk. And bankers made a lot of money, as did home builders and all the suppliers of materials that helped construct the modern suburb, from oil and plastics, through appliances and home furnishings. Finally, millions of Americans got access to home ownership for the first time, because the terms of these new mortgages were very generous.   [The loans] had low down payments. They were amortized. The federal government restructured the mortgage market as it insured it. We don’t need to go into the details, but that’s what made it viable and profitable. 

Again, this happened only because federal officials made a certain kind of home loan on very     specific terms into a very liquid investment. They asserted state power and they used state resources to secure those investments’ value and marketability. That is how money was fundamentally changing the way that resources were distributed by race.

Here’s the second part of that. Because, magically, by embracing orthodox economic ideas about money, [federal officials] also described what they were doing as purely market-driven. They insisted, and many historians still buy this line, that government mortgage programs did not create wealth but simply helped money circulate more efficiently. The story is that credit policy unleashed pent up demand and let the real sector of the economy do the heavy lifting. 

But that story only holds up if you imagine that money and credit are distinct and if you believe that credit is not economically productive. If you buy that story, then you erase the fact that the modern housing market in America is literally hardwired to be racially discriminatory. The housing economy, as I write in the book, was racially constructed. Re-thinking money and debt helps us to see how this was achieved. And it brings home the larger point that racism is not a sentiment or a misplaced belief system, but rather a structure that is embedded in modern life.

Scott Ferguson: Clearly, you’re not the first scholar or first historian to be telling the story of 20th century American racism in a systemic way.

David Freund: Oh, no, no, no, no. Long tradition.

Scott Ferguson: Indeed. So my question is: how does money and debt as a system potentially change or problematize other stories of 20th-century systemic racism that have been researched and told and taught?

David Freund: That’s another huge one. I’m interested in the relationship between federal policy (particularly federal debt creation) and its local implications. Much of the work on structures of racism focuses on case studies about local and state level politics. One of the things that I’m really curious about is how thinking about money as systemically created and distributed in racially discriminatory ways translates into the circulation of those monetary instruments in local economies. I don’t have anything profound to say about that, but there are people doing absolutely stunning new work on local real estate markets, the history of slumlords, and the politics of local bond financing. Ultimately, if we can integrate a heterodox understanding of money as a credit instrument, I think that’s going to raise some really important questions about the dynamic between the level of the monetary sovereign and the level of how people use money instruments locally. 

There’s also the important literature about discrimination within so-called welfare programs and in federal spending for the allocation and creation of whole industries in postwar America. For instance, the Sunbelt is, in large part, a creation of federal spending in the military industrial complex. There’s an extant literature on those structures of discrimination that needs to be revisited in light of the idea that money is not just a circulating medium, but a productive force.

Maxximilian Seijo: That’s so interesting. It seems like, specifically with the example of the local case study along the more urbanist model, that your framework in a broader heterodox monetary framework perhaps will open up the question of institutional and structural racism to more federal-democratic contestation. Is that your sense of where the integration of this sort of monetary lens is pointing towards?

David Freund: When you say federal-democratic contestation, what do you mean?

Maxximilian Seijo: In the sense that, for example, local bond holders and local real estate markets are always integrated into the federal structures of banking regulation and finance, in ways that are more influential and perhaps even more causal than some have suggested.

David Freund: No, I think that’s right. I think that’s spot on. You answered that question very well. Thank you. No, seriously. I think that is the place or one of the places that people can explore this. I mean, I will say, as someone who’s written a book about federal policy and local places–the second half of Colored Property is a local case study–it’s exhausting. And it takes forever. I’m hoping that we can create incentives for people to bring those two stories together. I think there’s a practical reason why people have often segregated these two subjects, in addition to the important interpretive angle that heterodoxy brings to that.

William Saas: I’m curious to know the extent to which you’re studying this history. In Colored Property, the very people who were being discriminated against, or who were most negatively affected, or even those most positively affected by the discriminatory policy, you got a sense that those people recognized and talked about and tried to do something about what was happening. I guess my question is: were there people speaking up against this at the time and clearly identifying it and were their voices suppressed? What happened?

David Freund: Yeah, that’s a huge story. It’s a subplot of my book, which focuses on the way that white people interpreted it. I have a very brief discussion of the amazing work that was done by activists and scholars, both black and white, to challenge these programs. And that’s a well developed story. There were a lot of people reacting to it and critiquing it. And there are some early critiques, like Robert Weaver’s work before he took over at HUD, and Charles Abrams, and a bunch of housing and civil rights activists, that were sort of developing a heterodox understanding of the role of state power. It is not the centerpiece of my work, but there are scholars doing amazing stuff re-creating those stories. 

What I did find–and this is partly because it was my focus–I really went in and tried to understand why white people didn’t understand the origins and dynamics of their own kind of structural privilege. That was the starting point for this project. And my big takeaway is that the vast majority of white people became convinced by and deeply invested in this mythology that was spread: that this was not about “race,” but rather about some kind of pure and choice-driven “market” dynamic.

One of the stories I track is about folks in the suburbs of Detroit. That was my local case study: how did these people respond to critiques of discrimination in the postwar era? Everytime [a critic] said, “Hey, look, we have segregation, this is unfair, and the government’s involved,” I was able to reconstruct [how residents] told a colorblind narrative about meritocracy and did so, in large part, by just grabbing onto the very tools, systems, and market mechanisms that had been created by the federal government. They literally turned to the FHA manual and said, “Look, no, no. Just like the FHA says. This isn’t about race.”

This is what FHA officials were arguing. [And] I believe that they convinced themselves of that. There were certainly some people who were saying, “Well, we really don’t want to live near those folks.” But this was the master narrative. I reconstructed this not just from public statements. I looked at the correspondence between civil rights activists and FHA officials. The FHA officials always responded with the same line: “Look, we don’t shape the market.”

In the end, I argue that a broad swath of people who consider themselves white in postwar America drank the Kool Aid. They bought it. It was in their interest to believe that they were not complicit. And it helped shut down a lot of activism and support for fair housing. I mean, we know that activism got a national platform during the Civil Rights movement, but there’s another story to be told about enforcement of civil rights and the Fair Housing Act of 1968. I would argue that pushback against enforcement, and eventually, the disassembly of those mechanisms, which is still underway, are fueled by this same kind of willful ignorance and the belief that there are these “market forces” that operate separately from people’s ideas about people, about place, and about who should live with who.

Scott Ferguson: I’d like to shift the discussion to your exciting book in progress, State Money, where you seem to be unearthing a more expansive story that encompasses the one you’ve already been working through in terms of a racialized property. In the book, as I understand it, you’re tracing a pretty fundamental broad shift in the way that American money is structured and the role of the state in that restructuration. To start, I just want to invite you to tell us a little bit about that story and then reflect upon how this puts pressure on the ways we’ve, whether it’s from orthodox perspectives or heterodox perspectives, thought about American money.

David Freund: Yeah. I should say, I promised myself after writing Colored Property that my next project would be more modest and contained. Ha ha, yeah. Joke was on me. Then I got this bug and took a deep dive into finance and the rest is what it is. 

The narrative of this book has two parts. One is trying to introduce historians to the long history of money and heterodoxy. The first chapters are a prefatory section. Then I turn to a case study to show how changing the lens through which we look at money and finance reshapes familiar stories. And I look at one of those familiar stories. It works on many scales, but the essential transformation is one that’s well documented by standard, conventional histories of finance and the state. It’s about the creation of the Fed and the transformation of its operations in its first 25 years, culminating in the New Deal legislation, which sort of rebooted the Fed and turned it into a different animal. 

The story that’s kind of the hook here is one that makes people’s eyes glaze over when you tell them that you’re working on it. It’s about the reinvention of Treasury debt. (The kids in class are like, “Oh, please tell me more!” No.) What I mean by that is the following: before World War I, investors did not go out of their way to purchase U.S. treasury bonds. Indeed, they were seen as risky investments. Experts counseled bond buyers–in manuals published at the time–to avoid buying U.S. government bonds. It was like the plague. Stay away from that. You gotta be crazy. Jump ahead to the 1930s and that’s ancient history. Treasury bonds by then are an essential component of the American financial system and they are deemed to be as liquid as commercial debts, which are commonly called “commercial paper.” These are the traditional debt instruments that banks collected in order to lend money. Now by the 30s, everyone’s like, “Oh, the Treasury bond. That’s just as liquid as a promise of an inventory or future production of goods.” 

What I’m asking is: how did this happen? It’s a complicated story. It takes me on this pretty deep dive into the weeds of finance and policy. But the short version is that the U.S. government went deep into debt to fight World War I. The Fed helped it market those debts. It’s something we know about, yet most historical accounts have magically erased this from the story.

Scott Ferguson: Which means what? When you say “market”?

David Freund: The Fed literally created the money that people and banks used to buy the debt. That’s why the money supply increased. It wasn’t that people had saved up and bought Treasury bonds. There’s this wonderful quote from [financial historian] James Grant: “the Fed was very generous with savers who happened to not have money.” Right. They literally created the “keystrokes” that allowed banks and individuals to buy billions of dollars of debt. I can’t remember the exact number. 

Anyways, the U.S. government goes into debt. The Fed helps make it possible. And in the 20s and 30s, a series of banking and policy interventions elevate those debts to new prominence. And they have maintained a version of that prominence ever since. The markets have changed considerably since World War II, . . . but [Treasury securities] continue to be a centerpiece of the American financial system. 

The other part of my narrative is how experts argued over the meaning of this transformation. I show how they reached a rough consensus by the 1930s. That, yeah, it was okay for the nation’s banking system to be heavily collateralized by federal debt. They just completely turned the conventional wisdom about the value of Treasury debt and the nature of money’s asset base on its head in 30 years. Why do they make that argument? Here’s the punchline. In their view, money is just a commodity token that helps the private sector operate at its full capacity. They basically embraced and refined this long intellectual tradition of viewing money this way. And by doing so, they could explain away the new state capacities and new state power over finance.

Now, there was a dissenting view–“real bills”–that challenged [this new consensus]. . . . . But [it] was basically shut down by a reassertion of monetary orthodoxy: again, the view that money isn’t essential to economic growth. [It claimed that] the federal state’s new role in backing the money supply was neither here nor there. It was just a management move that protects banks and the public. . . .

Now, once you look at this familiar story about the transformation of the Fed and the role of federal debt through a heterodox lens, it raises a bunch of questions about the way that we understand federal policy in the 20th century and its power to shape economic outcomes. It fundamentally challenges many of the conventional templates that scholars employ to discuss topics such as “big government,” federal spending, welfare programs, and partisan politics. Because, even before the federal government got “big” in a conventional sense during the New Deal, it had powers to shape markets that many economists are reluctant to acknowledge. That’s the first way that [this approach] challenges our conventional views of political economy. Then, once the Great Depression vastly expands state capacity, as we know it did, it means that federal financial and fiscal policy are at the heart of understanding both prosperity and precarity in the modern United States. It’s not a discussion about when the government should act or when it shouldn’t. The government is always there and it’s always acting on these two fronts. It’s, again, baked into the way that the modern American political economy functions.

Maxximilian Seijo: I was wondering if we could take a deeper dive into the Real Bills Doctrine of the 19th century and maybe you could reflect on the limits and possibilities of the Real Bills Doctrine versus the later paradigm centered on Treasury debt?

David Freund: Right. This gets at the most complicated part of the project. That is, if the project is a story about the [changing] mechanics of finance and about the intellectual and political negotiation of that change, then this is the most complicated part of that intellectual, political side of it. And, to be frank, I’m still sorting through it as I’m writing these chapters . . .

It basically goes something like this. “Real bills” was simultaneously regressive and progressive. “Real bills” was the conventional wisdom among bankers, and among a lot of monetary theorists, that a bank [should] only issue a loan when the borrower gave it a so-called “real bill,” which was a promise of a commercial good. It could be an inventory that they’re going to sell. It could be the promise to build something and sell it. The theory was that banks wouldn’t issue too much money [if] they were creating monetary instruments that would be used productively in the economy. That’s a short course in “real bills.” 

Still they believed, in a regressive way, in the commodity theory of money. In many ways [“real bills” advocates] are very much part of the neoclassical tradition. However, what was interesting and what makes them relevant to this story, is that the “real bills” model acknowledges the primacy of credit extension to the productive process. They do it on very different terms than heterodox and post-Keynesian folks do, but they were at least saying, “Look, this is central to how things are made and exchanged.” That’s why “real bills” advocates freaked out when the Federal Reserve assumed all these new powers over currency between World War I and the Great Depression. They saw that the federal state was assuming the power to basically stand behind monetary issue. In other words, a government promise was now standing in for a commercial promise to extend a loan. That’s why they’re on my map and I think they’re very interesting historically. But they mistakenly insisted–and this is where their orthodox impulses showed–that monetary sovereigns could not create productive capacity without distorting this mythical free market for goods.

“Real bills” was wrong to be sure, but it was also a canary in the coal mine, at least for students of heterodoxy, because it sounded the alarm about consolidating federal power over finance. 

The paradigm that won the battle over Fed policy, by contrast, is even more complicated. Of course, it helped to validate our current system, in which the Fed operates as a true central bank with lender of last resort powers and, critically, with the authority to finance U.S. government expenditures. [The Fed] literally injects federal spending into the economy and it manages the Treasury’s account. And it couldn’t do that, at least as seamlessly as it does, if it had not reinvented itself between World War I and the 1930s. And so, in the most practical sense, the existing paradigm explains how the federal government can manage, and at its best, sustain the domestic economy. 

The big problem with this new paradigm–the orthodox treatment–is that it masks the federal state’s generative powers. This will sound a little bit like a broken record, but economic orthodoxy insists that the modern Fed helps insulate a market for private financial instruments. And that this private market alone drives economic outcomes. In that model, money’s primary task is to circulate private wealth, which is then represented by money tokens. And to support this reading, orthodoxy insists upon two overarching myths. One, money isn’t productive. Thus money issuance by a sovereign is not wealth creating. Which, I’m sorry, that’s just plain goofy. And two, that the existence of all this Treasury debt and the active trade in that debt, which becomes so central to American finance and policy, are just conveniences. [Government debt] is a convenient instrument that enables monetary authorities to make these necessary adjustments to the supply of currency. In this orthodox view, [the Fed’s use of Treasury debt] in no way distorts private market activity. 

What the heterodox challenge does–and MMT has been especially effective at this–is help people recognize, first, that finance is essential and economically productive. Money literally makes production and trade possible. And second, it highlights the central role of monetary sovereigns in sustaining modern monetary systems. If you put those two together, you get a result that’s really important for understanding contemporary politics: that both federal monetary management and federal spending are essential to making our marketplaces function.

Scott Ferguson: Can you now connect the dots between your central thesis in your first book and what seems to be a key thesis in this book in progress? It seems like they are homologous and that the second book is kind of zooming out. I’m just kinda curious if you have thoughts about that.

David Freund: I do. I thought that the second book was going to cast the net wider and show the range of ways in which federal financial and credit policies have fundamentally restructured the American economy, especially since the New Deal. That was the original plan.  . . . .

[But it] turned into something that’s both narrower and broader. It’s narrower in that it’s literally just about this transformation of the Fed and what it did to American money. It drills down much deeper. . . . But, where it’s gotten broader is that I’m trying to highlight how any case study [of federal intervention] operates. If you look at any of these case studies in the context of this fundamental heterodox challenge and in the context of the fact that money is actually debt, it kind of changes everything. . . . 

Scott Ferguson: Yeah, and it seems to me that both of the books are about an obfuscation and a naturalization of money’s designs. And that, the law behind American processes of unjust racialization, is behind so many other problems and possibilities. And, I guess in that way, I see this as one larger evolving project.

David Freund: Right. That’s really nicely put. I appreciate that. And what you’ve done is articulated a connection that is there in the work, but one that I couldn’t yet articulate on those terms. When I was writing Colored Property, I knew that there was an obfuscation going on. I knew it was broadly about the federal role and credit markets. But what you’ve identified is the link, which is that the mechanisms of monetary creation and debt creation are at the center of both projects. And yes, I agree.  . . . I think they will help us understand a lot about systemic inequality in the modern world. Thank you for that. I appreciate it.

William Saas: What has working at the intersections of American history and heterodox economics changed how you think about the relationships between empirical research, on the one hand, and theory and speculation, on the other?

David Freund: That is very interesting. I think the lesson I take away from it applies to all interdisciplinary work. Again, I came up at a moment of the “cultural turn” in the humanities and learned a lot from it.  But I also grew critical of what I saw as some of its excesses, which was often when scholars ignored political economy and ignored the social. 

The lesson I took away was that good theory is always grounded in evidence. Theory is only speculative in that it suggests fresh or maybe hidden interpretive frameworks for understanding social reality. I think it helps people take interpretive leaps of faith and helps us to break out of what you could call hegemonic intellectual constructs. The best theoretical work on gender, on sexuality, on race, is grounded in lived experience and the documentary record. I used to write about theories of racial difference and I think the best work on that was informed by scholars and by activists who demonstrated historically that there is no real thing called race, but rather that there’s this constellation of power structures and practices that have invented and reinvented racial categories. They came up with the supportable theory, because the theory was fashioned out of a documentable past and present. 

And it’s the same with economic theory. Heterodox traditions are, for lack of a better term, fact-based and inherently inductive. In a lot of ways, they’re a throwback to the days before the marginal revolution in economics, when so-called political economists or institutional economists drew upon real world evidence to draw conclusions about economic processes. Not surprisingly, they are much more attentive to the power of institutions. By contrast, neoclassical economics is, for the most part, a deductive science. It imagines a world of individual consumers who have “perfect information.” It posits that this world, if it existed at all, would operate efficiently and produce resources fairly. And then, it explains why we don’t have it and how we can use policy to hopefully get closer to it. 

Let me put that another way, very briefly. I think we all have theories of how the world works. I don’t think there are objective or theory-free explanations of social phenomena. The task is to use history to determine if your theory is supportable. I’m sticking with that.

William Saas: Speaking of theory just a bit longer, are there any other historians working with other heterodox economic traditions and recognizing the critique of neoclassicism, but coming to different conclusions by different paths than you are with your work?

David Freund: Oh, yes. That is a really, really hard question to answer.

William Saas: I’m asking, in part, because it’s also true in other fields as well. Like there are Marxists, autonomous Marxists, and different strands of that. All seem to contain a critique of neoclassicism.

David Freund: Yes, absolutely. I see heterodoxy all over the place. There are long traditions of both activism and scholarship that are basically making the equivalent of heterodox economic analyses. There are so many smart interpretive traditions. Some are based in Marxist political economy. Some are built from work by institutionalists, especially institutional economists of the early 20th century who reconstructed some of these stories. Did they have a laser focus on monetary instruments? No. But I think they’re speaking to the way that things are baked in structurally and that institutions are basically shaping the allocation of resources. It’s a very interesting question. I appreciate it. . . . 

Maxximilian Seijo: So if listeners haven’t already recognized, you’ve been in dialogue with these largely obscure schools of heterodox economics for quite a long time now. I was wondering what it’s like to see MMT in particular become increasingly relevant and debated in the midst of what now seems to be a paradigm breakdown, specifically for the neoliberal consensus.

David Freund: Yeah. This has been a pretty head-spinning time for a lot of us. I began reading post-Keynesian economists while I was writing Colored Property. I stumbled upon a book by Robert Guttman. I went to his footnotes and I took it from there. I’ve been doing it ever since. And I quickly learned that this was part of a generations-old minority report, basically among economists, sociologists, and scholars in several other disciplines. I learned about their forerunners. There’s some really interesting threads of what could be called heterodox and credit money theory, for example, in classical economics writings. And, finally, I became a student of the post-Keynesian scholarship that sort of consolidated in the decades after World War II. 

I have enormous respect for the scholars who stuck with it. And it goes without saying, I literally could not do this work, both without their published work and the fact that they are helping me understand this stuff in real time. I know, both from reading the debates over heterodoxy and from discussions with some of its prominent practitioners, that they are held in contempt by the mainstream economics profession. That is not an understatement. And so basically, they’ve been keeping alive a tradition of inquiry and also making stunning contributions to a tradition which has the potential to transform the conventional wisdom about the relationship between the public and private sectors. 

So, in some respects, given that long history of push back [against] these ideas, it’s been a surprise to see these debates crash into the public sphere in the last year or so. It is fun to be able to tell people who I’ve bored to tears with discussions of monetary theory, “Hey, look, why don’t you just open up Bloomberg and see this exchange that’s going on in there? This is some of the stuff I’ve been talking about.”

At the same time, it makes sense that it’s happened, for two reasons. First, and this is a big, sweeping point: we know that moments of political and economic crisis have always created openings for dissenting perspectives. That’s central to understanding progressive victories in U.S. history. Think about labor movements, racial justice movements, LGBTQ movements, and others. Dissenting voices are always there and they’re usually organizing. Then moments of crisis help those voices gain some leverage. It gives their protest efforts some traction, it creates an opening for more people to rethink common assumptions, and it creates that space that I mentioned before when an analytical framework can be challenged and maybe even transformed. 

And, needless to say, we have been in an economic crisis for a long time and now a crisis of political legitimacy. I think that those things combined have made it possible for a new conversation about economic and policy alternatives to emerge. 

The second reason that it’s not that much of a surprise is related to that broader story of how activists and heterodox economists have long been working hard to make these issues a topic of public concern. I’m thinking about your previous question, regarding traditions. Non-economists have been exploring what might be called heterodox economic theory forever. It’s been central to civil rights organizing. Just take a look at Ture and Hamilton’s 1967 Black Power, or more recently, the mission statements of groups like the Black Youth Project (BYP100). It has always been central to black organizing. 

Meanwhile, heterodox economists, especially those associated with MMT, have very effectively leveraged the internet and increasingly electoral politics to get people talking about the importance of these supposedly arcane subjects and to understanding our contemporary political struggles. They’ve been very involved in recent congressional campaigns. Stephanie Kelton has been an advisor to Bernie’s presidential campaign. 

So, if you put all these ingredients together, crisis and all the hard work of dissent, it makes sense that Stephanie Kelton and Paul Krugman are duking it out in the pages of Bloomberg and The New York Times, or that Randy Ray is being interviewed by major press outlets, which gives me so much joy. But, sure, it is still very disorienting. And for those people who’ve been doing it their entire lives, I’m sure that they are thinking, “Pinch me.” But I think there’s a historical logic to it nonetheless.

Scott Ferguson: Well, David Freund, thank you so much for coming on our show.

David Freund: Thank you so much for having me. It’s really been a pleasure. I’m a big fan of your program.