By Anonymous (not, I think, that Anonymous). Originally published at Global Economic Intersections.
Warren Mosler (visit Warren’s blog) applies simple arithmetic to numerical relations that have a $ sign (or € sign), and explains clearly how a money economy works.
Everybody else stares mystified, as if placing a $ or € in the equation propels us into some alternate universe where ordinary arithmetic does not apply; where suddenly everybody is offering “moral” solutions (Live within our means!) to grade school arithmetic questions, as if “being good” exempts us from the rules of adding and subtracting money numbers.
“If Timmy brings 100 marbles to school and lends them to his classmates at 5% interest for the day, and the classmates diligently work to trade and earn and win enough marbles to pay their debts, how many marbles will Timmy collect at the end of the day?”
Follow up:
Most of the pupils are of the linear thinking neoclassical persuasion steeped from the cradle in “banker arithmetic”, so they sharpen their pencils and calculate that Timmy will receive 105 marbles in total principal + interest. “Profit drives the marble economy”, Teacher correctly explains, “which is why the classmates were all so busily engaged working for marbles.” And the pupils agreed it would be great fun participating in a marble economy where you could exercise your talents to get out more than you put in.
But little Warren had failed to cram his head into the neoclassical pencil sharpening box where you learn banker arithmetic and he exclaims, “But there ARE only 100 marbles, so unless Teacher adds marbles into the room, Timmy can only get back as many marbles as he put in. So the correct answer is Timmy will get back 100 marbles and some of his classmates will default on their debts and suffer a life of stupid unemployed poverty because Teacher says “We must live within our means.” and she refuses to add the needed marbles even though she owns the marble factory that produces unlimited marbles at virtually no cost.”
Teacher, by virtue of her “solid moral character”, is hired to run the Bundesbank, from whence she engineers a German export juggernaut that trades Mercedes for marbles so that Germans always earn enough marbles as profits to pay their debts. So now the “classmates” in Europe are rich in Mercedes but are destitute for marbles, because Germany got all the marbles in exchange for the Mercedes, and after the classmates ran out of domestic marbles Teacher “loaned” them more Bundesbank marbles so they could keep buying more Mercedes to keep the export juggernaut going. But finally it turns out the classmates cannot keep borrowing and spending German marbles to buy German exports and they start defaulting on their debts.
Teacher thinks, “Default? Which of my pupils used that word before?” And she remembers the little immoral heretic Warren who couldn’t understand moral arithmetic and insisted on applying “regular” arithmetic to problems about marbles. So she calls him up from his tropical tax haven and asks him to repeat what he once explained about “not enough marbles”.
Warren explains monetary arithmetic, which turns out to be the same as “regular” arithmetic except you confuse people with the mesmerizing $ € signs that wizards like to use to show how arcane and inscrutable they are. Then Teacher’s eyes are opened to the reality that morality and arithmetic inhabit non-intersecting Venn sets, where morality does not alter arithmetic. And with her newfound numerical clarity Teacher is appointed dictator of the ECB to save Greece and Germany and euroland from their mystifying problems with money numbers.
From her commanding heights at the ECB Teacher promptly begins distributing per capita grants of euros to all the classmates in the eurozone, and soon everybody has enough marbles to pay their debts and keep their game of “money economy” happening, to the delight of all parties. Greeks are smiling in their new Mercedes and Germans are revelling in their fat bank accounts as they soak up the Greek sun on vacation. And all’s right with the world.
Except for some Austrians, who confront Teacher, “So where are you getting all the marbles you’re distributing willy nilly throughout euroland? That seems pretty immoral to us! Unsustainable, too. Vigilantes will come an’ git you. And you won’t like that, nosiree!”
And Teacher patiently explains that numbers and morals do not mix, and that she simply made up the marbles because that’s all “money” really is, equations of numbers. And you don’t “get” numbers from some secret hidden pile of numbers somewhere. You simply add numbers when your economies are short of ‘money’: when people and resources are languishing unemployed and people can’t pay their debts; and you withdraw numbers (tax) once the economy is working near full capacity and price inflation gets too hot. She explains that euroland appointed her grand wizard dictator of the ECB because she alone was not mesmerized by the € sign, and she was not afraid of invoking wrathful plagues of ‘hyperinflation’ for daring to add and take away numbers that have a € on them.
The Austrians slouched away muttering about heresies against sound money, and they tried to stir up moral outrage in euroland against this blasphemous Teacher woman. But euroland was so happy with their restored economic prosperity that few even heard the Austrians let alone heeded them.
Until the truly fearsome monstrosity from the depths of the Earth began to raise his dread voice, the inexpiable “peak resources”, the beast who will not be appeased by numbers. But that’s a fable for another day. Today’s story was about “money numbers”, and how to use this knowledge to solve the present crisis, which is a confusion of arithmetic problem, not a real resources problem.
A related fable by J.D. Alt involving a variation of the game Monopoly can be read at New Economic Perspectives.
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Is it possible for you to cross post this to Daily Kos?
I can cross-post it there, Katie, if Anonymous gives me permission.
Joe, you can contact me….
Notice Timmy winds up with all 105 marbles under this plan as well. That’s precisely the insanity of MMT; it methodically delivers the world’s production to Global Usury. (Which actually must circulate only ten marbles to be owed the 105.)
SBDM is, in my opinion, a superior alternative. Here, the sovereign government erects toll barriers on the bridges, and pays its workers and contractors in toll tokens, which then circulate as money. As the bank doesn’t own the bridge, it can only lend such tokens one to one. Thus SBDM is uncompetitive as a lending currency and is spent first, thereby circulating usury-free until it is redeemed at the bridge. Or, similarly, circulate Forever Stamps as digital money. SBDM=Service Backed, Service Denominated Money.
The dipstick that wrote this status quo based intentionally deflective article says;
“Today’s story was about “money numbers”, and how to use this knowledge to solve the present crisis, which is a confusion of arithmetic problem, not a real resources problem.”
The present crisis IS a moral problem; creation and control of ‘marbles’, and the outrageous usury charged for their use, is in the hands of the few self anointed Noble Liar elite. The author confuses baloney as a math problem.
Slaps self on forehead and says, “Gee, I could have been organizing election boycotts!”
Deception is the strongest political force on the planet.
I agree that the problem is profoundly moral.
As for the supposed “morality” of the Austrians, one should not confuse primitive with moral. The mistake the author makes is to assume that the Austrians are moral. They are not. They are hypocritical fascists who would replace theft by inflation with theft by deflation.They claim to be for liberty but would force us all to use gold for money – rented from them for usury.
Just like all those philosophers who wrote about what constitues the good life when 99% of the work was done by slaves.
F. Beard
The problem is applying moral principles in trying to solve a math problem.
Economics is a math problem, specifically an engineering problem. Modern economics tries to solve math problems using morality. Can’t be done.
Math forces us along one path, regardless of where we may want to go.
TPTB understand the math (I think) and they use it against us by confusing us with moral issues.
The long game is for private interests to control the people’s money directly.
Currently they do it using government as their proxy.
Economics is most definitely NOT a math nor engineering problem!
Economics is political.
Stuff gets produced, stuff gets consumed. How do you get something for “renting” your skills/talents/capital? We have systems in place; generally based on the sound natural law that the strong exploit the weak. Unless the weak can band together.
poltics is simply economics by other means
Lil’D
said:
“sound natural law that the strong exploit the weak. Unless the weak can band together.”
That is correct. It is only through knowledge, wisdom and sacrifice (fighting) that the weak can balance things and bring some justice to the situation.
Here is how the bankers’ game works:
http://aquinums-razor.blogspot.com/2011/11/here-is-how-bankers-game-works.html
mansoor h. khan
paulj –
I would agree with you if you had said “Money Creation is a math problem.” That’s what JD Alt was presenting as the theme of his fable.
The Economy, as Lil’D says, is definitely a Political problem and not just a math or engineering issue. Politics is how “we” decide how the wealth that society creates is distributed. As anonymous (aka JD Alt) the money creation is merely a mechanical thing. What you do with money after that — including interest and other moral, philosophical constraints — in squarely in the political realm. And that part is always going to be difficult, and fractious.
We must remember that there are important differences between Money, Wealth, and the Economy. Obfuscation of those differences is the goal of both the ignorant and the evil — to “our” detriment.
I echo what WarrenCelli says: “Deception is the strongest political force on the planet.”
JurisV
The Economy, as Lil’D says, is definitely a Political problem and not just a math or engineering issue…”
“Of course a car will go, but someone has to drive it, and competently. we make choices that affect the economy. Bad ones make us crash.
That’s not a good reason to make unforced errors.
The economy can’t go where math won’t allow it to go. The economy is limited to one path and our choices decide how far and in what direction on that journey we go. One way is prosperity, the other is…
Anyway, all I meant to convey was that growth is mathematically impossible without expansion in the persistent money supply ie net cash assets in the unit of account to account for growth, wealth accumulation (profits) and leakages (trade balance).
This should be uncontroversial, but most seem to believe the economy is powered by magic.
An alternative to money creation by expansion would be high taxes above some threshhold level that won’t allow massive wealth accumulation that starves the system of funds.
Thats what we did for 50 years until around 1980.
We still have to account for a tripling in population, which spreads a fixed money supply thinner.
And no, savings don’t fund anything. They are useless except to the holder.
Engineering (however lame it is) attempts to deal with the real world; economics does not.
This “dipstick” is precisely showing that the problem today is a moral one by demonstrating that current arguments in favor of austerity have no rational basis.
Doesn’t anyone remember how to read a fable?
Wow. So many comments, I’m going to post my initial take then enjoy everyone else’s. I’ve already seen some very good ones.
First, my apologies if I’m mistaken, but I take that last paragraph to mean it falls into the category of “fable” that such a thing as real resource consumption/ecological degradation limits exist or that some magic “fix” is in the offing. I look forward to reading that post when “another day” comes this way, and will try to keep in mind what a great job we’re doing distributing resources amongst the 7 billion people we have now. I’ll suspend belief in those silly images I have of people rifling through enormous urban garbage heaps living in tin sheds at the base of the pile, and the billions more in similar wretched straights the world over. And even though I’m not supposed to confuse “money” with an economics problem (population/resources/eco-damage), I’m sure with enough digital zeroes it’ll be a snap to create what it would take to provide for all of us properly, like good top-2 quintile Americans.
Second, just to demonstrate maximum fairness, suppose a clean debt slate and other non-crisis conditions. I’d like to hear what, in principle, would prevent a system based on the more rigid “Austrian” or other “hard money” doctrines from being as fair re income distribution, employment, public spending, taxation, regional imbalances and the rest as anything else – assuming honest, decent, compassionate, fair men and women in leadership? Could it not, if directed by the public, place a limit on personal wealth, for instance? Could there be an “Austrian” money socialism (and please, no cheap “nazi” shots) as it were? Would that be impossible for arithmetic reasons? Are there no initial conditions that would allow it to work going forward? Ain’t someone going to argue a couple of those kids figured out how to make the most of their marbles in order to generate more marbles? Has anyone noticed you have to have money to make it or lose it? The 1% is only 1%, who would still be fabulously rich if they lost most of their wealth. I suspect, therefore, they are not the political problem so much as the next 19%.
Similarly, could there not, in principle, be some form of despotism or gross systemic inequity under an MMT regime? I’d just like to see it spelled out, because from my perch, what I seem to see here at NC from devotees of MMT is itself not at all clear. Is this about a view of money, or is there any clear political philosophy entailed? If the latter, why present as a money theory, not a political/economic/social alternative? Is it about nicer capitalism or something quite different? Is it intended to be a form of socialism, but can’t say so? Or, what I have sometimes wondered, is it the equivalent of looking only at the throughput and to hell with what the output actually is, who determines it to what end and what is new management’s connection or claim to output/wealth? Can it imagine categories other than “wage” or “job” or “growth” to ensure all who need are provided for?
Anyway, it seems to me the heart of the money/debt problem for “advanced” nations when it comes to the “hardness” of money owned by the monied vs future commitments is: what do you do when an entire generation now lives an entire generation longer than a mere 60 years ago, so you now have 4 generations alive at once – and in particular those of the truly affluent elite(the ones who still believe they have money)? Isn’t that what the fight is ultimately all about? Will the current elites (top 20% domestically and globally) and their children maintain their wealth, status, position, privilege, advantage etc. in a demented, hyper-competitive, technologically accelerating global race straight into the wall? Who is going to break the news to them about what they think they own?
Apologies to Pebird. I meant to post this on the side as a general comment. I’m going to repost below.
Good comments, Warren.
The last political action group I was with has reached a unanimous opinion (myself included), that the American economy has long ceased to be an actual consumer-driven or consumer-based economy (I know, funny, how every citizen is now referred to as only a consumer, never a citizen) but has been really dismantled down to, and restructured into, the fantasy finance non-economy.
True, there’s still some commerce still going on, as there always will be until the ultimate neofeudalism state is fully realized.
The problem with the author’s analogy is that the banker/student with the marbles isn’t limited to 100. If this is a real banking analogy, and he/she has 100 marbles, he/she is allowed to loan many times that number. And, apart from the initial marble supply, there is no need for a marble factory. The banker/student can leverage another, say, 1000 marbles into existance by loaning them.
The math at this point must react to the politics and incentives of the classroom economy. For instance, not all of the students will be equally able to repay the marbles. But if the student/banker gets a fee from each loan, he/she might look past qualifications for the short-term gain. Also, the agreement to repay these loans add marbles to the balance sheet, and thus more leverage to loan out more marbles. Marbles are raining into existance, and many of them go into the student/banker’s pocket.
Also, who gets the marbles? For instance, do blue-eyed students get more marbles (have better credit) than brown-eyed students? Classroom culture and politics mix to make these decisions, not math. And, how is the teacher regulating? How are incentives being shaped? Is the banker/student now creating exotic marble derivatives for high profit yet high risk?
When incentives drive the banker/student to loan out too many conjured marbles, or to gamble them away in the derivatives market, and his/her bank faces default, he/she will go to the regulator/teacher and ask for help. The regulator/teacher now goes to the marble factory and turns on the marble machine.
How many marbles will be given to the banker/student? Well, if the teacher is going to be paid thousands of marbles for giving speeches for the banker/student when he/she quits teaching, probably as many as the student wants. And with new leverage, the cycle starts again.
Politics, incentives, culture. Math is but an adjunct.
“Notice Timmy winds up with all 105 marbles under this plan as well.”
Yup, those Social Security direct payments to the banksters is quite the scheme.
Yup, those Social Security direct payments to the banksters is quite the scheme. pebird
Excellent point! Instead, the US Treasury (or Post Office) should provide a risk-free fiat storage and transaction service and government deposit insurance ABOLISHED.
“Notice Timmy winds up with all 105 marbles under this plan as well.”
In one plan, Timmy has all the marbles and many other people are ruined financially. In the other, Timmy has all the marbles but no one is ruined. This is a significant difference.
>>In one plan, Timmy has all the marbles and many other people are ruined financially. In the other, Timmy has all the marbles but no one is ruined. This is a significant difference.<<<
The people end with no means of exchange, unless they borrow again. MMT delivers the fruits of their labor, their land, their physical and intellectual capital, that much faster to the usury Parasite.
The analogy would be stronger if Timmy didn't even relinquish a marble, but rather the promise of a marble, backed by a lien on the assets of his classmates.
If there were a Rule of Law, and If we lived in a Country in which an Institution like the Post Office could be counted on to Not go out of business, Forever Stamps would make an excellent inflation hedge. Actually, so would TIPS.
If TIPS (Treasury Inflation-Protected Securities) cannot circulate as money; if they did, they would inflate recursively in dollar terms. Forever Stamps, being service denominated rather than dollar denominated, do not lose value as the Postal Service issues more of them. The Postal Service would be enormously profitable if it could issue stamps as a means of exchange, paying its workers in them and collecting a percentage per transaction as banks do. Money would then be issued at fixed value, without the need for borrowing at interest, backed by services and industrial employment created fresh daily in the national economy.
Sorry, editing error. Please ignor the initial “If”.
Yes, Timmy winds up with those original 105 marbles, but guess what? Teacher issued new marbles to her pupils, new and old, and they got to drive even more Benzes and take more vacation on the beach along with all the modern trappings that would make kings and czars of yore cry with envy. Smiles all around of course, well except, for those who just know its all so evil.
Do you all ever get tired of your morality plays?
Entire civilizations are being thrust into debt bondage to perpetuate a thieving system of money instituted before women could vote. The world is figuring it out at last, via the web. Tick tock. Whatever it takes.
I share the concern of the bankstas’ debt enrichment, but to actually do something about that instead of the usual whining and fantasizing over some Libertarian dream that will never come (doesn’t even exist in Somalia), first one needs to come to understand that there is a difference between the debt held by a monetarily-sovereign government and EVERYONE else, i.e. it’s not really debt. Next figure out a why for that government to spend without hyperbolic debt enriching of the banksta; MMTers have figured that out with their suggested Jobs Guarantee (JG) program. I’m sure others could come up with additional ideas instead of spending their time whining and living in dream land or putting on morality plays.
We do not have a monetarily sovereign government; we’ve surrendered the money privilege to Global Usury. Our institutions, governments and neighbors are so deeply in debt these days that any greenbacks created and spent have no multiplier; they turn over once and are then used to pay back a mortgage or a Visa bill, whereupon they either vanish or are leveraged and lent at interest.
MMT is fiscal quantitative easing, which ignores the mathematical relationship between money and compound interest that is destroying our productive capacity. If you’d like to reestablish true monetary sovereignty, that’s an argument to take seriously. But MMT nurtures, protects, entrenches a parasitic, unsustainable, thieving scheme of money.
BTW, I was a Keynesian for many years, a believer in MMT’s predecessor, Functional Finance, via Abba Lerner’s book Flation, read in 1980. As well, a student of Vickrey, who envisioned the job guarantee. Realized my error with greater understanding of debt-based money. And I’m thrilled that so many NC commenters have come to Soddy, and see MMT for the destructive hack and diversion that it is.
For money based on reciprocity, consider service-backed money — http://sbdm.org — where digital bridge tokens and forever stamps are exchanged as currency. No lending into existence, no usury, no inflation (it’s barter), no quantitative limits, no demurrage, no counterfeiting, no assays or debasement, no bank runs; and industrial employment to keep the money good.
And think of the Shermans some got to drive in WWII! And some of the lucky Germans got to drive Tigers!
Yea, and the Mayan Calender has the world ending this coming December.
Sorry, I’d rather deal with reality.
A vast oversimplification and one that I do not believe accurately represents Moser’s views. It really sounds more like the Debt Virus than MMT.
The issue is the example makes a bunch of assumptions that don’t really hold – that all debts come due at once, that banks do not actually spend their profits, etc.
Nevertheless, there is a fundamental kernel of truth: In a modern financial economy, all commitments cannot be honored at once. In fact, if a small but significant number of creditors decide they want their commitments honored immediately then no one will be able to honor their commitments and the economy will cease to function properly. However, in order to grow, a capitalist economy requires the expectation that profits on business enterprise exceed interest on financial debt combined with a willingness to undertake financial debt to fund business enterprise.
This is a fundamental flaw in any sort of economy that has a fixed amount of “money” + debt contracts. These sorts of hard money arrangements are doomed to failure from the start. Friedman’s monetarism was an attempt to correct this flaw by letting the money supply grow at the rate of underlying economic growth. The problem with that is it incorrectly assumed the velocity of money to be a constant and to be independent from changes in the supply of money. MMT tries to address those defects but IMO still comes up short.
thank for a bit of moderation and common sense. we all have to live somewhere between the gold bugs and the MMT preachers.
we all have to live somewhere between the gold bugs and the MMT preachers. andrew hartman
Baloney. There are solutions that are no where on that continuum such as usury-free money solutions that “share” wealth and power rather than concentrate them.
Both the gold standard and MMT people believe in a government enforced monopoly money supply. Except for government money, no such monopoly is required.
I agree with a lot of this but not that Friedman’s “arithmetic”(adj.) increase was flawed due to Velocity.
Velocity must be a factor in determining the amount of money created annually – by “rule”, so to speak.
The arithmetic-equation would always be at work and over time improved to correctly “average” the growth of the money supply to the average growth of the national economy.
There’s no real problem there.
I hope you welcome the neo-monetarism discussion along with that of post-keynsianism and neo-chartalism.
For the Money System Common.
Thanks.
@joebhed
Velocity can create economic activity but it cannot create nominal growth in the aggregate (increase in net cash position on all balance sheets combined, the USA balance sheet).
That is mathematically impossible without expansion of net financial assets (excludes credit), which in turn can’t occur except through money printing (creation).
Instead, what we get is increased leverage of the system. The amount of “value” held becomes greater relative to the amount of persistent money (NFA’s) in the system (the economy).
This is like doubling the size of your home and the number of occupants without increasing the size of the service panel.
You will experience a lot of circuit breaker events.
Oh, wait. That’s what’s happening now.
Good points.
I totally agree.
And how do any of these systems work when there is no growth to be had? Do you have any suggestions for our present circumstances where no more economic growth is possible due to ecological collapse? In fact I think we’ll be lucky if we can coast this century with even zero growth instead of terminal, rapid degrowth. Can any of your theories account for the reality that we face?
@They didn’t leave me a choice
Can’t tell who your question was aimed at but, in case it was me:
“And how do any of these systems work when there is no growth to be had? Do you have any suggestions for our present circumstances where no more economic growth is possible due to ecological collapse?…”
Mathematically the system doesn’t change, only the inputs and outputs change.
Are you suggesting that our current problems have more to do with banging up against resource limitations than bad money management?
“… In fact I think we’ll be lucky if we can coast this century with even zero growth instead of terminal, rapid degrowth…”
I agree that long-term (maybe even medium and short-term) we have to be looking at a steady-state non-growth based economy. Read Buckminster Fuller among others.
Seems to me that this will require a non-profit system since accumulating wealth requires growth.
Rapid degrowth is fine provided we don’t starve 90% of the planet to do it.
Can any of your theories account for the reality that we face?
I haven’t proposed any theories. I’ve stated that there is a simple uncontroversial a mathematical relationship between economic growth and monetary growth in a monetary economy. The economy can’t grow without expansion (or recirculation/redistribution)of the fuel that powers it.
Money. Persistent money, not credit. The natural flow of money is from consumers to producers, not the reverse. When the producers have all of the money through extraction of profit from the system what will happen then (assuming we don’t create more)?
What I have stated is in fact in paradigm with reality. The natural state of the economy is equilibrium in the form of inactivity. At rest, like what happens with a car when you take your foot of fthe gas.
Under capitalism, the system requires money to be input to maintain a steady-state out of equilibrium condition, economic activity.
When most of the money is hoarded by the few, how do you think the system will respond?
>Can’t tell who your question was aimed at but, in case it was me:
Actually it was to joebhed, by any inputs would be nice.
>Are you suggesting that our current problems have more to do with banging up against resource limitations than bad money management?
I think we have both, but the resource limitations are what caused the badly managed monetary system to go haywire.
>I haven’t proposed any theories. I’ve stated that there is a simple uncontroversial a mathematical relationship between economic growth and monetary growth in a monetary economy. The economy can’t grow without expansion (or recirculation/redistribution)of the fuel that powers it.
Ah, fair enough, in that case, do you happen to know of any good writings on how a steady-state/degrowth economy could be constructed on a practical level?
>When most of the money is hoarded by the few, how do you think the system will respond?
I don’t think it is at all controversial (at least here, out there in the blighted mainstream the matter is probably different), the system will of course collapse. Money needs to circulate to be useful, hoarders will of course wipe out the system.
>Rapid degrowth is fine provided we don’t starve 90% of the planet to do it.
Are there practical ways of bridging that agricultural productivity gap caused by rarifying oil supplies (which modern agriculture requires) to a way of life that can be described as sustainable? Can economics help in this bridging and if so, how? We do know for sure it can cause immense harm, speculators and their ilk come to mind first. But are there economic decisions that might give the majority of the population at least a fleeting chance to survive the next couple of decades?
@They didn’t leave me a choice
“…do you happen to know of any good writings on how a steady-state/degrowth economy could be constructed on a practical level?”
I noted Buckminster Fuller in my comment. That’s the only source I know of.
I’m sure the internet is a treasure-trove on the subject though.
Herman Daly is associated with a group dedicated to Steady-State Economics.
http://steadystate.org/category/herman-daly/
Beware that he is a religious nutter, and that steady-state would be a best-case scenario for modern civilization. Other than that, it’s all good.
He’s quite good in having taken up Soddy’s mantle and in explicating his ideas.
Lidia
Herman Daly’s Soddy-based thinking evolved into the ecological-economics school, which transferred its base to the Gund Institute for Ecological Economics at the University of Vermont.
Here Pete and I discuss a letter I sent to Prof Gary Flomenhoff, one of the school’s monetary policy leaders.
http://youtu.be/geQdFxrnWHE
Thanks.
Irregardless of the rationales that govern when money is issued into an economy , such as Friedman’s rationale to add money to reflect the growth of the economy, as long as money is only issued as debt, the economy will always be vulnerable to inflationary and deflationary phases due to fluctuating interest rates and credit policies that are controlled by private interests and bankers. The powerful rentier/banker class love this game, as during inflationary times they can inflate their assets values and ‘cash out’ and during deflationary times they can use their cash to purchase assets on the cheap and browbeat governments and populations to accept austerity and limited government involvement. MMT and sound government does provide a lucid solution to free us from the grip of rentier bankers; as governments are not fiscally constrained and can issue money to pay for needed initiatives without burdening their citizens with debt.
The major issue of credibility and operational sustainability that MMT must address is how to link the monetary system to the limitations of the real resources, Capitol, and environmental carrying capacity of the nation. Furthermore, how would an MMT government constrain the demand for ever rising nominal wages from its population? A new social bargain would need to be constructed so that the government could operate with a high regard to the long term Wellbeing of the people of the nation, without falling prey to short term whims of the electorate.
Heretic,
“…link the monetary system to the limitations of the real resources, Capitol, and environmental carrying capacity of the nation…”
I think this is a self-adjusting mechanism. If we don’t do it nature will do it for us.
The things we need or have to have, food, shelter, healthcare, education, even transportation should be available to everone ond only takes a fraction of the workforce to provide.
This leaves most of the economy and it’s agents to rely on producing stuff we don’t “need”, just want.
We can produce many things that don’t require resources other than labor, like more education, leisure, various services, etc.
We don’t have to manufacture so much “stuff”.
In the world of the future (not that far away, maybe 50 or 100 years) we won’t need people to do anything, everything we need can and will be provided by machines if we let that happen.
Where will capitalism be then?
I think you overestimate the amount of stuff that is useless. My house is littered / paved in toys from my 3 children. When the lights are out it really isn’t possible to walk without hurting yourself or breaking stuff. Still, despite the fact that the kids treat it as such, it isn’t junk. If it was useless, we wouldn’t have hired it. It serves an educational purpose. It also serves a limited childcare purpose and frees up labor among the more productive members of the household, which has real value no matter what economic system you espouse.
Now, I could throw all the toys out, buy three iPads and let my kids have virtual toys that don’t contaminate the world with 1,000 years of plastic for 1 year (if lucky!) of use. However, I don’t for a moment believe that they will be better off — lack of exercise, no sunshine, vision problems from too much close work, behavior problems from too much sedentary activity, etc. — and alas, despite what I tell them about the limitations of my childhood entertainment, rocks and sticks really only do go so far.
There are uses for sticks. However, I’m hoping to keep them ignorant of the practical uses of Atlatls, because the local wildlife probably won’t be able to withstand more hunting than it already gets at the hands of the kids. Same for tomahawks, etc.
Besides, I like the bunnies.
@Ian
All of those things can be or will be made by machines.
Spenders (consumers) are also workers. If there are no workers who will consume?
My claim that much consumption is worthless was a relative statement. It was in response to a question of resource depletion where we have to make choices.
Friedman’s “Program for Monetary Stability” DID, in fact call for the using the Fed’s open-market operations to “produce a 4 % per year rate of growth in the total of currency held by the public and adjusted deposits in commercial banks”.
THAT was debt-based money.
But in his much earlier “Fiscal and Monetary Framework for Economic Stability”, he called for the Treasury issuance of debt-free money paid into existence directly by government spending, accounted for by the annual budgeting process.
There are way too many people in the discussion of modern monetary economies who do not see that there can be such a stark distinction made between debt-based, and non-debt-based money.
I am reminded of Friedman’s comments about his relations with Keynes that were penned in his biography.
Said Friedman:
“” Keynes had nothing to offer those of us who had sat at the feet of Simons, Mints, Knight, and Viner.”
Those were four of the authors of the Chicago Plan for Monetary Reform, advocating the end of the private Fed and the beginning of debt-free public money administration in America.
Friedman fully supported the Chicago Plan.
Ahh, that socialist Friedman !!
Yep, if one take a peek over at Steve Keen’s work one see that the marble lending do not need to suddenly spawn extra marbles as long as loan can be down-paid over time. It would require that enough marbles keep changing hands (including Timmy loosing or spending some).
Steve Keen seems to be missing something regarding the limitations of a closed system.
Credit can only expand as far as incomes can maintain the service of the debt.
We are at or near the threshhold now.
Thus the debt can no longer be rolled over, since it requires increasing debt that can’t be serviced, so the system collapses (the flow stops) through mass defaults like we see now.
Nothing can change until the debt (private debt) is satisfied.
At the rate we are deficit spending (not enough) it will take years if not decades to dig out of this hole.
If we continue to finance our lifestyles with credit we will end up here again. We should stop digging.
Borrowing to finace consumption is a fools errand. You are merely spending income that hasn’t been earned yet. Talk about counting chickens.
Further any kind of investment is an extraction scheme that removes more from the economy than it puts in.
See “wealth accumulation”. The financial resources just move from many small piles into a few big ones and stops, kind of like what the dynamics of the hourglass.
The joy of compound interest.
This is why a growing economy is unsustainable without a growth in persistent money, not credit, and why Steve Keen is wrong about this one thing.
Borrowing to finace consumption is a fools errand. paulj
Except that those who don’t borrow are priced out of the market by those do borrow. And deflation does not correct things but merely reverses the injustice in favor of non-debtors.
The whole system is a moral and ethical nightmare.
Steve Keen does propose a universal bailout which he calls “A Modern Jubilee” at http://www.debtdeflation.com/blogs/manifesto/
F. Beard
This…
“…those who don’t borrow are priced out of the market by those do borrow…”
…doesn’t parse for me.
I choose not to borrow to buy “stuff”. My purchasing power is greater than if I borrowed. I just can’t have it as soon.
In 1989 I bought a car that cost $13,000 that I ended up paying $19,000 for in the end with interest.
What did I get for the $6,000?
Currently my wife and I are refinancing our existing mortgage loan of $77,000 because our original mortgage is at 8 1/4% from 1994 (This is the only loan we have, probably would have been better off renting all those years).
We will save about $45,000 in interest over 10 years by adding $200/month to each payment without increasing the payment we are currently making.
Seems like a win-win to me.
(This is the only loan we have, probably would have been better off renting all those years). paulj
Housing is not like other consumer goods. One might save to buy a better computer and succeed because the cost of technology is constantly dropping. But if one tries to save to buy a house the interest he receives on his savings is likely to be less than the rise in home prices. The reason is that credit is essentially counterf**t money – to not borrow is to risk being priced out of the market by those who do borrow.
I’d been listening to Keen on a podcast when a similar challenge came up (sorry, I’ve no link at the moment: it was either KMO’s C-Realm or Carl Etnier’s programme out of Vermont). Keen brushed it off, saying “it was all about the FLOWS”, and that we could not understand infinite
increase if we did not understand FLOWS.
Well, I think I have an instinctual sense of flows, and what I see is that the flow of energy from 1.) the sun and 2.) fossil fuels is not enough to support our modern economy with its growing population. There is certainly *a* theoretical possibility of increase on Earth, but just not at the same time we are cutting down forests and paving over paradise to put up parking lots, while attacking birth control and insisting on suicidally increasing our own number. At any rate, Earth’s increase might be 1-2% or so, I’ve heard bandied about. If population increase is 2%, however, BEYOND keeping pace with a natural increase, every percent increase contributes to further limiting spaces for Earth’s rejuvenation, diminishing the verysame figure for potential increase: continuing to ratchet down numbers for natural resource increase until we are how we are, with ongoing and worsening resource consumption/destruction.
I don’t have the academic jargon to refute Mr. Keen, but I just instinctually knew he has been misguided, despite his great worth in debunking much of conventional economics. He apparently just can’t let go of that one last bit…
Actually, Lidia, the flow of energy from the sun (even the tiny fraction of it that hits the Earth) is orders of magnitude more than what we need to support the modern lifestyle. We just choose not to use it.
World energy consumption: ~500 exajoules
Total solar incident on earth: 3850000 exajoules
http://en.wikipedia.org/wiki/Solar_energy
http://en.wikipedia.org/wiki/World_energy_consumption
@Ian… it still takes all the things Lidia mentions – too create – the devices that will harness that energy. Not to mention the area required to station it all.
Skippy…. Might I offer a suggestion. If your so enamered with life style accoutrements, try living at the tail end of a chemical plant, some poor slobs have too. At the end of the day, the toxins have finaly made it to every nook and cranny of the planet. Now its just building in quanity. Don’t you just love experiments!
Ian, our modern lifestyle requires concentrated energy. You’re right that there’s plenty of energy “around”, but it just doesn’t happen to be in a form which is useful to us.
The most efficient converter of solar energy is plants, and the most efficient converter of plant energy for human use is animals, AFAIK.
Nature has done all the engineering for us, but we decided to trash the game board and play our own Calvin-ball sort of thing, with nukes and GMOs and pesticides and the like. I mean, what could possibly go wrong with making food crops produce persistent pesticides? Oh right, WE want to eat the food, too! This is the sort of “genius” that you and otherwise apparently intelligent folks like M. Khan expect to save us.
Digi_owl, here’s the Keen paper I think you’re talking about:
http://www.debunkingeconomics.com/Papers/Money/KeenCircuitEndogenousMoney.pdf
He’s using, in his own words, “example parameter values.” Thus, he writes, “Though in the real world workers normally get lower deposit rates than firms, for simplicity I will use the same rate of interest.”
All he’s going to be able to demonstrate, then, is that, because the bank’s expenses are non-zero, there exists SOME RATE of interest on money creation under which economies can grow without an increase in debt to banks. He has no way of demonstrating that any bank would willfully undermine its own growth by limiting itself to that rate (which would also include the bank’s merchant transaction fees!)
Moreover, consider this element of his model. Per Keen:
————
According to Graziani—and almost all theorists in endogenous money—the repayment of debt
destroys the money that was created with it (Graziani 2003: 29-30). I consider this by adding an
additional term R P to represent the repayment of debt. If we relate this to the level of outstanding
debt 9 , then the amount R P.F L is deducted from the firms’ only source of money, FD
Yet to where does it go? Here Graziani’s third condition for the existence of money comes into play: “the use of money must be so regulated as to give no privilege of seigniorage to any agent” (Graziani 2003: 60). This repayment therefore cannot be made to the existing bankers’ deposit account B D , since banks use this account to finance spending on commodities. It must therefore go to a separate, capital account: the banks’ reserve account, which I call B R
.
Reserves, once created by the repayment of loans, will be relent. This amount will be deducted
from the banks’ reserve account and deposited in the firms’ deposit account—and a matching
entry will be made in the firms loan record of account.
The repayment of loans therefore does not “destroy” money, but transfers it out of income
accounts—where it can be used for expenditure—to a reserve account. Once there, it is an
unencumbered asset of the banks which can then be re-lent—though not spent directly on
commodities or services. This adds an important additional insight to the concept of endogenous
money: not only do “loans create deposits”, but “the repayment of loans creates reserves”.
————
So Keen’s model challenges the notion that repayment of debt destroys credit money, as if Melissa’s every credit card bar tab permanently inflates the economy. No way. Graziani is right; Keen is wrong. Money is created by banks as an overdraft. Repayment of principal restores the status quo ante – with interest still owed.
And yes, Soddy had this, which is why, when Keen made his book tour and INET visit to NYC last fall, I personally exhorted him to read Soddy’s The Role of Money.
Soddy is amazing. I have only read “Wealth, Virtual Wealth, and Debt” so far. “The Role of Money” is on my list to read. As a physical scientist, he completely cuts through the “economists'” bullshit.
Keen seems quite ensconced in his academic equations, not unlike many economists, apparently. He needs a breadcrumb trail out.
I don’t think there is any economic reality which needs to rely on complex algorithms or which cannot be explained in plain language. Both real and abstract monetary wealth moves to the rich because they can command power structures which will continue to enforce that wealth pump. There really isn’t much else to understand.
To EconCCX
Thanks.
Excellent points.
First, do you know the date of that Keen paper?
In it, he had not yet expanded his model to include banking, debt and central banking functions.
I believe it was in 2010 that Keen observed the workings of noted Japanese monetary economist Dr. Kaoru Yamaguchi at AMI’s monetary reform conference. Keen observed that Dr. Yamaguchi’s model, which included those parameters, was the most sophisticated macro-economic model he had ever seen.
Here is Dr. Yamaguchi’s paper and his model is publicly available.
http://www.old.monetary.org/yamaguchipaper.pdf
And my interview with Dr. Yamaguchi at the conference:
http://youtu.be/iONSua-cvkE
Now Keen’s whole “schtick” with Krugman is that NeoLiberals don’t use his more ‘sophisticated’ model.
I am hopeful that both Keen and Yamaguchi will be at this year’s AMI conference again (late-Sept.) to compare notes from the meantime.
Joebhed: Keen published a version of that paper through ICAPE (International Confederation of Associations for Pluralism in Economics) dated June 2007.
http://www.debunkingeconomics.com/Papers/Money/KeenModellingEndogenousMoneyICAPE.pdf
Numbers and morality may not mix, but numbers and physics certainly do. So here’s some basic physics.
Marbles do not come into existence out of thin air. They are mostly made from glass, though some are plastic, clay, porcelain or stone such as agate. We’ll assume that these marbles are made of glass, though. If the teacher has a marble factory which “produces unlimited marbles at virtually no cost”, it does so by shaping glass (or the raw materials of glass, such as sand and other minerals) into the marbles. So, while the manufacture of the marbles may be at virtually no cost, it does have the effect of reducing the amount of glass available for other uses. So: more marbles, less glass; more glass; fewer marbles.
In physics this is an example of a conservation law. Basically, the amount of material in the system stays the same, it just changes form. So, perhaps Austrian economists object on moral grounds, but more practical people object on the basis of elementary physics. If you’re creating a lot of marbles, it’s only by changing something else into those marbles.
This is why claims that one can create unlimited numbers of marbles comes across as decidedly shonky.
Allow me to suggest that the way the system actually works is that there are twenty kids in the class and each of them brings some marbles to school. Most kids bring one or two, a few bring five or six, Timmy brings twelve. The total number of marbles in the classroom is 100. Timmy lends some of his marbles to the other kids at 5% interest. After a day’s worth of playing marbles, some kids win, some lose and Timmy collects his marbles and interest. While some kids lost the marbles they borrowed, others won additional marbles and Timmy ends up with fourteen marbles. However, there are still only a total of 100 marbles in the classroom.
This process continues over the next few days and weeks, and though Timmy experiences ups and downs, eventually he ends up with all the marbles. However, in addition to all the marbles, Timmy also has all the other kids in the classroom in debt to him because each of them, at one point or another, borrowed some marbles from him at 5% interest, and there just aren’t enough marbles to cover that interest. There’s only 100 marble in the classroom; if Timmy’s owed a total of 105 marbles, then there’s no way he’s going to get he other 5 marbles.
However, this doesn’t worry Timmy. He generously allows the other kids to work off their debt in other ways — doing his homework for him, acting as his servants, deliberately letting Timmy do better than them in tests so he gets a better grade, giving him their lunch or shoes, or nice new wristwatch, and so on. There are lots of ways Timmy can benefit from having the other kids in his debt. In many ways, it’s better than actually being paid the marbles.
Allow me to suggest that the whole notion of interest is just a way of creating debt so the lender can claim other people’s stuff in a way that seems valid, legitimate and morally justified.
Conservation laws can be a real bitch that way — especially when combined with notions that you can get something for nothing.
…That you go get your own f’ing blog.
What is the “real” cost to the fed for making one more dollar? Nothing, especially if it isn’t cash.
But…It’s a Consevation LAW!!!!!
And money isn’t physics, go back to the corner and sit with all the other HFT’s and quants.
There is a cost. The government must extract resources from the economy to provide the force that backs the fiat.
A masochist? Why must everyhing be enforced with the REAL threat of violence? To make it Moral?
And, more directly to your point-
Fixed cost-
http://en.wikipedia.org/wiki/Fixed_cost
1. A fixed cost is still a nonzero cost.
2. There is a variable cost component, as enforcement costs increase with increasing arbitrage from issuing currency.
Getting completely away from the point of the “fable”.
Arbitrage? Timmy can’t spell that yet.
++++
What did it “cost” me to write that? Non-zero, yes. Would I consider it a “cost”? I don’t think so. We could debate that “cost” down to it’s asymptotic limit…
Where did the letters that form the words come from? I didn’t steal them from someone else, I promise. Yet they are there…Heresy!!!
I have no idea what you are talking about, so what is your spew worth to me?
Less than fuck-all.
Q.E.D.
Go back to your football games as economic models.
Where did the first dollar come from?
Was it derived from nature, or did some guy just say that now, this is a dollar? The same way someone decided that a touchdown in football was worth 6 points. Did he violate nature by sayign that? Who is he taking those points from?
And how did he come up with that dollar if there were none to begin with? It’s nature, you can’t just invent things…It violates the second law of therodynamics!!!!
Allow me to suggest wrote:
And how did he come up with that dollar if there were none to begin with? It’s nature, you can’t just invent things…It violates the second law of therodynamics!!!!
How does it violate the second law of thermodynamics?
If you mean how did he create the first dollar coin, I would point out that mining, smelting, transporting, casting and striking that first coin would have produced, among other things, a lot of waste heat, so the total amount of entropy in the system would have increased.
If you mean how did someone come up with the idea of a dollar, I would point out that the biological processes required to maintain life and enable thought also produce a range of waste products including heat, so once again, the total amount of entropy in the system would have increased.
In neither case is the second law of thermodynamics violated.
I’m not sure what you think you’re demonstrating, but so far all you’ve shown is that your ideas require people to ignore large parts of physical reality.
Money is only valuable in so far as it can interchange with the physical world which thereby forces the constraints of the physical world upon it. There is no free lunch in the universe, conservation laws matter and all conversions induce loss. To believe otherwise is childish. In effect its an argument that economists have succeeded in inventing the perpetual motion machine where scientists have failed for centuries.
Where do the points in a football game come from?
cost wrote:
Where do the points in a football game come from?
They’re a record of the number goals scored by each team in a game. Depending on the type of football, each time a team scores a goal, they get so many points — one in soccer, six in Aussie Rules, no idea in American football.
While you can argue that since there is a potentially unlimited number of points available, there’s nothing to prevent us from adding more points to a scorecard whenever we want to, that’s bad for a couple of reasons.
I. It’s regarded as cheating — though that’s a moral argument;
II. It renders the scorecard useless, since it’s no longer an accurate record of what happened on the field during the game, and that’s the primary purpose of a scorecard.
Now, while adding points might facilitate other activities that depend on the scores of football games such as gambling, it destroys the primary function of the the scorecard as a record of how many goals were scored in a game.
Of course, the basic problem with this is that, since points represent goals scored, they work on a labour theory of value. That is, the points represent the successful labour involved in scoring a goal. This obviously doesn’t apply to economics because, as we’ve long been told, the labour theory of value is invalid.
Occasional poster on this site, Philip Pilkington once said that the labour theory of value is invalid because it can’t be measured — and since all we’re doing by recording points in a football game is measuring the number of goals scored, the situation clearly has no application to economics where such things apparently can’t be measured.
Where do the points in a football game come from? – cost
Your question makes my point. The game is either professional or amateur:
1. Professionals are paid to produce points and have tranied diligently to influnece point scoring. Their effort is in no small part related to the pay they recieve for doing such of a thing and would immediately demand renegotiation or their wage and potentially cease playing such a violent sport if their was not profit in it. Furthermore if the person controlling the scoreboard decided to arbitrarily add point then the act of scoring itself is devalued. As the rate of arbitrary point addition increased people would lose interest and ultimately the sport would cease to be played due to lack of interst.
2. Amateur: Played for fun by people competing to test their skill against an opposing team. Again as the rate at which points are randomly allocated the contestants and spectators rapidly lose interest as the whole thing becomes irrelevant and pointless to participate in much like what would occur if you took the authors original piece to its logical conclusion.
To all you MMTers around here. You are correct in that you can chose to randomly create money by dictate into the current monetary system virtually at will. The reason we haven’t is not because your smarter than everyone else but because the consequence would be the collapse of the monetary system in terms of it relevance and would create bigger problems than it solves. Its a solution only if you very narrowly define the problem and exclude the consequence of taking the thought exercise to its limits. Its an absurdity to spend any serious amount of time thinking about. Additionally, and this is really problematic for economist types, the emperical data supporting your religious belief that this is how things work is only valid for the set of conditions under which the result was observed. You can not extraploate the same result forward as though the act itself would not have consequence to the system. In short correlation is not causality.
The problem with stupefied MMT deniers is they make rash assertions with no mathematical of factual evidence to back their claims. They also don’t read and understand MMT literature and make up a boat load of straw man stories.
“While you can argue that since there is a potentially unlimited number of points available, there’s nothing to prevent us from adding more points to a scorecard whenever we want to, that’s bad for a couple of reasons.”
Bad according to who? Smells like morality…
cost wrote:
Bad according to who? Smells like morality…
If you bothered to keep on reading you would have discovered that by “bad” I meant “has deleterious consequences”. If I wanted to make a moral judgment, i would have said that it was “wrong”.
If you just add points to a scorecard all you do is destroy the scorecard’s value as a record of how many goals were scored in the game. Further, anyone who depends on that scorecard as an accurate record of what happened will no longer be able to use it as such or, worse, will be misled by your chicanery.
What you don’t seem to grasp is that changing numbers on an inventory spreadsheet doesn’t make more stock appear on the shelves, drawing lines on a map doesn’t make roads appear in the territory, photoshoping a picture of yourself next to Angelina Jolie doesn’t mean you actually have a relationship with her.
You can manipulate records of reality however you like, but reality is under no obligation to change to match your manipulations.
Allow me to suggest —
Kukulkan came up with one of the more intelligent responses so far, so it figures that someone like you would pop up with a big mouth, no understanding, and a cheap shot for a reply.
It’s not intellignet. It’s long winded sophistry, complete with his view on physics.
Physics does not equal money. Money does not equal physics.
Perhaps we should move the debate forward with some discussion of 17th century french literary form?
It has the same relevance….None at all.
Allow me to suggest wrote:
It’s not intellignet. It’s long winded sophistry, complete with his view on physics.
Not my view on physics, just plain physics. You don’t like the fact that the universe operates along various conservation laws, take it up with God because, as far as I can tell, no one less than God is able to change that.
Physics does not equal money. Money does not equal physics.
We’re talking about marbles. The original post suggests that money can be treated as equivalent to marbles. If you disagree, then address your objections to the original poster.
Alternately, if you’re unwilling or unable to go along with the terms of the fable, don’t comment.
Marbles are made of glass. The more marbles you have, the less glass you have for other things. So, at the end of the story, while everyone in euroland has lots of marbles, they no longer have windshields or headlight coverings in their Mercedes. Of course, some people would treat that as a completely unrelated problem: automotive engineering, not economics.
But…It’s a Consevation LAW!!!!!
You obviously have no grasp of what a scientific law is, which is why you’re reduced to screeching the equivalent of It’s only a THEORY!!!!!” like some creationist confronted with evolution.
What does physics have to do with arithmetic?
3+4=7
Except when phsysics is applied?
I just stole your 3, 4 and 7….
Allow me to suggest that you read Soddy’s “The Bearing of Physical Science Upon State Stewardship”.
Money is the “social-construct” that determines the eventual outcome of that relationship.
Unless we wake up and recognize and treat money in that respect, we will end up exactly where we’re headed right now.
For the Money System Common
Another “moral” argument that has nothing to do with the point that the author is trying to make.
“Unless we wake up and recognize and treat money in that respect, we will end up exactly where we’re headed right now.”
Who or what will smite us? Why? Because we didn’t show “respect”? How can you be so sure? Do you talk with “it”?
But the author says that “peak resources is a FABLE for another day…”
From Soddy:
“Although debt can follow the law of compound interest, the real energy revenue from future sunshine, the real future income against which the debt is a lien, cannot grow at compound interest for long. When converted into debt, however, real wealth “discards its corruptible body to take on an incorruptible” (Money Versus Man, page 28). In so doing, it appears “to afford a means of dodging Nature” (page 24), of evading the second law of thermodynamics, the law of random, ravage, rust, and rot.
The idea that people can live off the interest of their mutual indebtedness (Wealth, page 89) is just another perpetual motion scheme – a vulgar delusion on a grand scale.
Debt can endure forever; wealth cannot, because its physical dimension is subject to the destructive force of entropy.”
So, then, according to Soddy, 10 – 3 = 6.3272345827364…because of the second law of thermodynamics?
According to Soddy you cannot decouple the limits of the physical world from our monetary system (a perpetual motion scheme). Adding more points to the scoreboard does not address the necessity of ‘perpetual growth’ on a finite planet.
Ya know what, Pete? It’s not just “according to Soddy”.
Any hubristic attempt to construct a world NOT based on physical principles will fail. Modern American and other “advanced” cultures just can’t comprehend this, which hardly makes it wrong.
I was talking with a rich Milanese woman, saying that I found it odd that people would turn over real wealth (i.e., land or a house) in exchange for pieces of paper, and she said, without apparent irony, “that’s VERY SICILIAN of you.” I.E., backwards and retrograde…
So I’ll ask again, what does 10-3 equal? You keep coming up with reasons why I am wrong, but 10-3 equals 7, does it not?
This has nothing to do with physics, thermodynamics or the physical world.
How would you teach a young child arithmetic? Start with thermodynamics?
Sorry, Allow me.
This is to Lidia at 7:40 PM.
THAT is one of the finest comments I have ever seen on these pages.
Being Sicilian and all..
I often base my comments on Soddy’s work.
I believe that intelligent people will ultimately choose from the truly science-based schools of political economy, those that recognize the foundation issue for state stewardship of any national economy must its physical resources – very broadly defined, and ITS national money system, which must be issued without debt.
I have seen no one who has done that better than Soddy.
This has been a great discussion here.
Sorry I missed it.
Thanks.
@joe, the kicker is that I’m American, hardly Sicilian. Well, ok, I have one Italian grand-parent of indeterminate origin; the rest of my American heritage is Irish/Scots/English.
I would like to think I was Sicilian, though. Or maybe even better, Sardinian. ;-)
How would you teach a young child arithmetic? Start with thermodynamics?
Yes, I personally would do that, and I think it is a crime that the study of such an essential science is left to specialist concentrations in college.
A kid SHOULD know that 10 – 3 may well equal 6.3272345827364, depending on the circumstances.
Why delude them?
A child is not necessarily stupid: we make them stupid, for the most part.
Sicily is poor, no? Because of their lack of faith and suspiciousness? A self-fulfilling prophecy?
During the 1980s I could have made 20% on my IRA but I chose to be safe and picked “Guaranteed Income” for 9%. My lack of faith cost me 11% per year. Ignorance can be costly.
So, then, Thermodynamics is the basis for arithmetic?
How did some dude come up with thermodynamics without arithmetic first? How can he count?
It’s an identity. pi equals 3.1415….
Did I just steal those numbers in order to write that? How did I come up with those numbers without numbers?
Sicilians are quite religious, and also quite suspicious, having had their island over-run by various groups over the millennia.
Numbers are fine, but they do exist primarily as pure abstractions. Thermodynamics is not the basis for arithmetic, but it is at the base of all sciences, when you think about it. You don’t have to know numbers to instinctually understand energy flows; you can still do it with a counting system of “one, two, many…” ;-)
@Allow,
The number 5 is not the same as $5. You put that little magical symbol next to an impartial number and you have to account for the web of thousands of social arrangements that create its story and the energy required to make them all happen. ‘Money’ does not = Math.
Allow me to suggest wrote:
How would you teach a young child arithmetic? Start with thermodynamics?
I’d start with physical objects, such as marbles. I’d show them that one marble and another marble makes two marbles. Two marbles and three marbles makes five marbles, and so on. Subtraction works the other way around. Multiplication is just repeated addition. Division is probably the trickiest, but it would be by asking things like how many groups of three can you separate twenty-one marbles into?
I’d also probably explain how positional numerals work and that 10 – 3 = 7 is true only in base ten. If the number system you’re using has any other base, then 10 – 3 will not equal 7.
Thermodynamics would come later.
Now let me ask you a question:
Using marbles, how would you teach the idea of interest to a child? Allowing for the fact that applying 5% interest to 100 marbles requires you to have 105 marbles, but, like Timmy in the fable, you’ve only got 100 in front of you?
Kukulkan
Your points about interest are true, a credit-based economy is unsustainable. This is a horizontal world.
The Eurozone is a horizontal world (unless the ECB starts printing money and GIVES it to the countries in distress because of liquidity problems). Liquidity problems that arise from the flow of Euros out of their countries as a result of imports and interest payments.
MMT is based on a vertical view of the monetary economy where dollars are created at will to provide for growth and adjust for leakages and savings desires.
These are persistent dollars, not credit dollars. The economy can’t expand without them, but our gloriuos leaders want to stop printing them.
J.D. Alt has the story right. He is describing the system as it is, not as it should be. That’s up to us.
Thanks. Though it doesn’t seem to have register with the other commenators, this comment nicely explains my objections to “MMT”.
I think what gets lost is that money is only a sort of proxy for goods and services. Debt makes sense when there is an increasing supply of goods and services; it allows the debtor to spend or invest today goods and services he will get tommorrow, and since he would probably have more goods and services tommorrow than today, he can spend some of tommorrow’s goods and services through taking out debt today, and have enough left over to pay a fee (interest) to the creditor. And if he invests this additional wealth, he could wind up obtaining even more goods and services.
If the underlying wealth of goods and services is contracting, then the effects of debt are pretty horrible in just about every instance, for obvious reasons. Even savings are not as great an idea as in a growing economy; in a contracting economy, since you can’t invest savings profitably, they just represent a store of deferred consumption that is vulnerable to theft. For these reasons debt and savings (or investment) based money systems are highly vulnerable to collapse in a situation where the “real” wealth that underlies the monetary instruments is contacting.
I happen to think that the underlying problem with the current crisis is the increased cost of extracting natural resources/ commodities, in other words a decrease in the wealth underlying money, so obviously I’m missing the point of solutions that boil down to “just print more money!”
I happen to think that the underlying problem with the current crisis is the increased cost of extracting natural resources/ commodities, Ed
You happen to be wrong. Excess private debt is the problem because productivity gains were not shared with the workers. Instead, the population was driven into debt with credit – counterf***t money.
Ed,
I appreciate the reasoned response. I think you are mixing up many processes in your argument though.
MMT doesn’t say we should print more money. Nor does it say we should not print money. MMT sees money printing as part of the sytem and it should be managed in just the right amounts.
MMT ia a description of the economy the way it is, a monetary economy fueled by nominal dollars (for the US).
These things aren’t based on opinion or theory, they are based on the underlying math system that constrains them.
Suffice it to say that growth is not possible without expansion of the nominal unit of account by which it is measured.
This is not a moral or philosophical statement. It is a mathematical fact. The economy is a system governed by the laws of arithmetic.
Decisions by humans (choices) can in the aggregate cause movement along the defined path one way or the other, but they can’t change the path.
Most of the problems with economics and discussion about it arise through switching back-and-forth between mathematical descriptions of the ssytem and semantic descriptions.
Much is lost in the translation but math rules the roost.
Unfortunately, it appears that most peoples brains do not like or are not wired to truly undestand math and systems, so they have to rely on semantic descriptions.
What they tend to end up with is a cartoon or caricature of reality.
paulj wrote:
Much is lost in the translation but math rules the roost.
Actually, I would suggest that physical reality rules the roost.
To take one famous example, Johannes Kepler developed literally hundreds of mathematical models to describe the orbits of the planets, but ended up rejecting all but three of them because they did not fit the observed data. And some of them did not fit only by fractions of a degree, but that lack of fit was enough for him to reject them.
There was nothing wrong with the math in any of the equations he rejected, but at the end of the day, the physical reality determined which ones were valid descriptions of planetary orbits, and which ones weren’t.
It’s possible to run any number of curves through three points, but only additional observation and data will determine which of those curves represents reality.
I am not even sure there is a increasing cost in extraction, at least not as big a increase as one would suspect given events. There is this system called the futures market that appears to gum up the works by setting up and trading in purchase contracts rather than direct goods. This then distorts the impression we have of the rate of extraction and available stockpiles.
Dude.
Money is a virtual resource, not a physical resource. If you don’t like how many trees you have to chop down, add a few 0’s to the value printed on the bill. Most of it is electronic anyway, and I don’t think we are going to run out of bits on hard drives.
Dude, the problem is that debt-based money IMPELS CONSUMPTION.
IT DEMANDS IT.
IT MATHEMATICALLY REQUIRES IT even beyond any natural increase in human needs/wants and irrespective of them.
That’s why there are tons of empty cracker-box homes littering FL and AZ: they have nothing to do with supply or demand—they were CONJURED INTO EXISTENCE BY A NECESSARILY-EXPANDING DEBT-MONEY SUPPLY. Increasingly, consumption must be directed to ever-more unhealthful ends, because there’s only so much food one person can eat, so we have to sell them plastic with their food, and a thousand other schemes just to keep the increasingly-larger gerbil wheel not only going, but GROWING.
Debt-money is NEMESIS, to use a word beloved by Ivan Illich, a fatal dealing out of justice. If we allow debt-money to play itself out to its natural conclusion, it will destroy all life on the planet. It mathematically cannot be otherwise.
1) Why is there only one money supply?
2) Why is it lent, not spent, into existence?
As for those who say that the situation of non-existent interest does not apply since the banker spends his interest back into circulation then
1) This is not true unless ALL the interest is spent. What if some of it is lent out for even more interest?
2) Why the heck are we working for bankers anyway? Because they are expert at determining who is “credit-worthy”? But if credit is essentially new money which dilutes the stock of existing money and thus steals purchasing power from all money holders then is ANYONE credit-worthy? The answer is
“NO!” unless we believe that some should be allowed to steal from others – in particular, the rich from the poor.
Actually, both occur.
The value is in the CIty (quoth Sir Terry, and I believe him a lot).
So what are the author’s answers to the following questions:
1) What message is being taught to the students who in the author’s words: “diligently work to trade and earn and win enough marbles to pay their debts”?
2) Who is responsible, the classmate, Timmy or teacher, when the classmates simply stop caring about their performance since if they lose a marble they are freely given to them?
3) What is the impact on the ability of the classmates to keep their marbles when they play marbles with students from other schools where when you play marbles and lose you don’t get bailed out?
4) If we are simply “printing marbles” then why does Timmy deserve any number of marbles in return? Is return not a function of risk or is author proposing than lending entities are entitled to return?
These are MORAL questions.
Your response is a dodge. The author is trying to use this stupid analogy to justify printing money to bail out creditors/debtors from their mistakes as the solution to world’s economic problems without acknowledging any downside effects. Perhaps this is just an economist being an economist, i.e. seeing a creative “solution” to a narrow definition of a problem. Furthermore is moralality irrelevant? Are you arguing that we as a society should not believe that all men are created equal , endowed by their creator with unalienable rights, etc? We should just accept that certain classes of people, e.g. bankers and politicians, are above the law if they can clothe their crimes in the cloak of some perceived future greater good?
to justify printing money to bail out creditors/debtors from their mistakes stupefied
The bailout should be universal – to non-debtors too.
And a universal bailout IS moral since credit creation cheats everyone.
Don’t assume that deflation is moral since inflation isn’t. Neither are! They are akin to a barbed arrow that wounds as it enters and wounds even worse if it is withdrawn.
I see deflation as the necessary balance to inflation, light:dark, yin:yang, etc. Rather than complicate things, let capitalism perform creative destruction, something not practiced in this coutnry for decades now. Nothing to be feared and something to be embraced as part of the natural order of things. As for the non-debtor component of your reply this too is a dodge without the specifics as who gets what becomes very important decsions to preseve “fairness” to your proposed solution. I’d be interested to hear how you propose this and most importantly how its any different than the “fairness” achieved by not doing anything at all.
Nothing to be feared and something to be embraced as part of the natural order of things. stupified
There is nothing natural about creating money by lending it into existence. Was your blood supply lent to you? If it was would it not be lethal if the lender required you to pay back the loan?
F Beard said; “There is nothing natural about creating money by lending it into existence. Was your blood supply lent to you? If it was would it not be lethal if the lender required you to pay back the loan?”
Your blood was loaned to you. The lender will require that you pay back the loan. It will be lethal. Make good use of the loan while you can. Creating anything into existence is ‘natural’. The measure is the morality of the creation.
Deception is the strongest political force on the planet.
You dare compare bankers (thieves) to God the Creator?
You do know that Jesus took a whip to the money changers? Will He be less angry at bankers?
Yes, I dare compare bankers (thieves) to ‘God the Creator’; your term for what I would call the overforce, and others may refer to as; Divine Providence, the Force, the big Kahuna, etc.
Jesus will not be less angry with the bankers. Jesus is dead.
Your blood was loaned to you by the overforce. The overforce will require that you pay back the loan. It will be lethal. Make good use of the loan while you can. Creating anything into existence is ‘natural’. The measure is the morality of the creation.
Usury is as debilitating of the human spirit as is belief in imaginary figures in the sky. They are both deceptions. They are both a parasitic drain on the individual organism that prevents that individual from reaching the fullness of their potential.
Deception is the strongest political force on the planet.
The author makes no moral arguments. That is the entire point.
Does everything have a “moral” answer? What does 2+2 equal? Now, morally, what does 2+2 equal?
Slow your head down, no one is trying to shove anything down your throat. Take it or leave it. There is an entire internet at your finger tips.
> What does 2+2 equal?
4.
> Now, morally, what does 2+2 equal?
It /should/ equal 4.
See the difference? It’s all in the should and not in the 4.
If it is not equal to 4, then it is mathematically incorrect, and morally wrong. The difference is if you are mathematician then you ignore / fix the result as obviously incorrect, whereas a innumerate morality driven person would express outrage!
Stupid
Just as long as it is not you or your child that does not starve or does not develope correctly we are all good.
Right?????
US morality entails working hard and becoming rich.
The monetary system is based on consistent debt creation and most wealth has been amassed by using leverage.
Living within your means is a nice concept but how do you calculate it when no one has the same definition?
and most wealth has been amassed by using leverage. Moneta
Great point! And since “leverage” is essentially new money which steals purchasing power from all existing money holders then how can it be said that the rich are rich because they lived within their means? They lived within everyone else’s means is how they got rich if they used leverage.
Printing money is great if it is going in the hands of the new players, new generations. It forces wealth redistribution. The problem is that today’s printing is going to those who already have everything.
The other issue is this… Without a central bank hard goods and/or services can be traded and there is an infinite amount of potential trade.
With a central bank, a huge amount of trade is curtailed because central banks and banks more often than not require collateral. Therefeore, only the rich can borrow. The 99% get to play through real estate, collateral the banks like. Without real estate, the masses are screwed in our current monetary system.
We can therefore argue that most services depend on the initial injection of money backed by real estate. Those with the hard assets control our economy and ultimately end up deciding which services get paid.
One way to circumvent this is to have government print money for services. Government spending which does not have to be backed by hard assets gives power to the 99%.
But the 99% is so pissed nowadays that it wants to kill the tool it should be using: government.
But the 99% is so pissed nowadays that it wants to kill the tool it should be using: government. – Moneta
President Reagan persuaded many people that “government is the problem”. We have become accustomed to thinking that our government is an isolated entity, divorced from the common people. But President Lincoln reminded us that we, the people, govern ourselves, with a government of, by, and for the people.
F. Beard reminds us of Steve Keen’s approach, that the government of a sovereign nation could use debt-free money to relieve the debt burden of the entire population. We, the people, would bail ourselves out: our representatives in Congress could put Steve Keen’s plan into effect.
The bankers would obviously be opposed to a universal debt-free bailout because it would deprive them of the stuff that sustains them. They use their power and influence, expressed by pouring money into Congress, to thwart our attempts to divest ourselves of our burdens of debt.
If we could enact a bill to resolve our debts, profound changes in our economy would ensue. We would generally have more money to spend in the economy. Some of us could work fewer hours, or retire, thus making jobs available. Methinks the full range of effects on economic activity would be difficult to predict accurately.
Government is inefficient for a lot of reasons. One of them is that it is currently controlled by corporate America.
The 99% should not be attacking/destroying government, it should be doing everything in its power to get it back.
Another is that misallocation of capital needs to be addressed. So it’s not about austerity but about getting capital flowing in the right places.
Moneta, how exactly do you see that coming about?
What would induce our corrupt representatives to turn away from the corporate blandishments which sustain them now and upon which largesse they plan to live out their lives even when out of office?
“The monetary system is based on consistent debt creation and most wealth has been amassed by using leverage”
Are you talking about public debt or private debt?
Private debt is the problem, and private debt can’t create nominal growth. Private debt includes both a dollar asset and a dollar liability – it nets to zero. No balance sheet expansion is possible (No increase in cash is possible).
The economy will appear to expand until it is over-leveraged and then it will contract. The net nominal expansion will be zero.
What would be left behind would be a lot of stuff that was produced chasing credit dollars and a lot of liabilities that couldn’t be repaid.
There would have to be a reset (debt forgiveness).
Debt forgiveness is equivalent to a nominal expansion.
Application of simple arithmetic with no moral judgements.
Debt forgiveness is equivalent to a nominal expansion. paulj
A universal and equal bailout of the entire population, including non-debtors, would be a lot smoother than debt forgiveness and more just too since credit creation cheats non-debtors via negative real interest rates.
@ F. Beard
You may well be right. I was just making a statement that is true from a math perspective.
This article is not about fairness, it is about “the tyranny of arithmetic”.
Once that is better understood fair solutions are easier to engineer.
Once that is better understood fair solutions are easier to engineer. paulj
Agreed. And the “tyranny of the arithmetic” also proves the basic immorality of the system.
@ F. Beard
“Agreed. And the “tyranny of the arithmetic” also proves the basic immorality of the system.”
Only for some of us unfortunately.
Capital markets are too large relative to GDP.
Either debt gets written off of GDP grows.
The eocnomy will get back in line when either one of these occurs and that means a redistribution of wealth.
Wealth does not have to be redistributed but negative wealth (debt) needs to be destroyed. A fair (and politically palatable) way to do this is an equal distribution of new fiat to the entire population COMBINED with a ban on further credit creation.
A universal bailout would reduce relative wealth disparity without making anyone poorer. Example: A has $100,000 and B has only $1000. The wealth ration is 100 to 1. Now give both A and B $100,000. The wealth ration is now only 1.089 to 1 yet A is not any poorer at least not in nominal terms!
Correction: 1.98 to 1 NOT 1.089 to 1
Sorry!
They are both entertwined as public debt has been used to sustain private debt.
Gross misallocation of capital needs to be addressed.
Private debt is the problem, and private debt can’t create nominal growth. Private debt includes both a dollar asset and a dollar liability – it nets to zero. No balance sheet expansion is possible (No increase in cash is possible).
—–
You are assuming no inflation.
If inflation takes off, which will probably occur if China weakens, Europe fails and devaluates and the US starts to rebuild itself, incomes will finally increase… unless the population lets the 1% keep the loot. The ones who would gain would be the workers. That means a generational wealth transfer.
The next time the economy tanks, rates won’t get cut, companies unable to refi will fail, M&A will soar, capacity will shrink and this will generate inflation.
In a few years, Americans will start to buy houses again and debt creation will happen.
IMO, the reason why changes are not happening is because the top 15% minus the top 5% have enough to retire but not enough to lose to be able to keep on going the way they have. They are 50+ and they don’t want a redistribution to occur in their lifetime. If there is a redistribution, only the top 5% will be able to keep on on going the way they have been. North Amercians in the top 10-20% most probably have created themselves lives that are too big for what they afford long term. And now they are stuck.
So the problem is not only the top 1%, it’s also the top 15% that is still clinging to their overpriced lifestyles.
Moral of the Fable:
(possibly reading more into it than is actually there (like, alas, almost all replies at this moment, 02:09 PM CET))
– not everyone can de-lever at the same time;
– society isn’t run for the benefit of Timmy (read: economics);
– people neither appreciate nor understand fables anymore.
Students of history may recall that Lincoln financed the Civil War by issuing Greenbacks rather than borrowing from bankers. Some believe this explains his assassination as well as that of Garfield, who had begun making anti bank noises as the depression of the 1880s unfolded in consequence of the resumption of specie payments.
An issue just as important as that of interest is who gets to borrow and for what purpose. These days most borrowing is done by politicians for wasteful and pointless expenditures (most of which boil down to payoffs for important contributors and voter constituencies), and by predatory capitalists for the purpose of cornering markets in raw materials and speculating in existing productive assets. Meanwhile, economists prattle about the entrepreneurial virtues of our free enterprise system.
It is a shame this site now seems increasingly devoted to platitudinous nonsense. Facts are important and occasionally interesting. Wooly headed theorizing is simply boring.
Indeed Jake, people speak of money as if it has some intrinsic “value”. Value comes from labor, that which transforms something of lesser value into something of greater value, thus providing a “profit”, the difference between what it costs to produce and what it is “worth” to someone else.
A good example of this is the loaf of bread. The raw material is available to everyone, but the value comes from the convenience of having someone else do the work of providing the finished product. The economy of scale makes the “profit” even greater since creating large amounts at a time lowers the cost to the manufacturer.
The value in dollars or euros is as a medium of exchange, where I get paid for my labor in a currency which I can exchange for the product of your labor.
The problem as I see it is that money itself is now seen as having some value outside of this relationship due to the principle of interest. Where money now produces more money with no value added, in fact, it decreases the value of already existing money due to inflation.
As in the example above, the finite 100 marbles becomes 105 because 5 marbles exist as debt. Yet we know there are only 100 “real” marbles, yet 5 more “debt marbles” come into existence as if by magic.
The problem being, people treat these “debt marbles” as if they are real marbles because they don’t know any better, and debt thus becomes to be seen a wealth.
“Allow me to suggest that the whole notion of interest is just a way of creating debt so the lender can claim other people’s stuff in a way that seems valid, legitimate and morally justified.”
You’ve just summarized as succinctly as I could imagine, David Graeber’s Debt: The First 5000 Years.
and yes, the thought experiment here is even more limited than “assume the cow is a sphere.”
OTOH, maybe it’s a little more succinct to say:
“The whole notion of interest is just a way of creating debt so the lender can claim people in a way that seems valid, legitimate and morally justified.”
Slavery is a substantial part of the argument.
Or, most succinct of all:
The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.
I would say that “conservative” could be just as easily be subsitituted by “capitalist”, and we are All Capitalists Now, whether we like it or not.
Everything we have has been sucked into their schemes, whether through ‘voluntary’ investment, forced investment, or via the “no means of escape” of property taxes, to which even renters must succumb.
Oops, that quote above was a hoary classic from JKGalbraith.
The rich rules over the poor, and the borrower becomes the lender’s slave. Proverbs 22:7
Since credit creation drives people into debt (borrow or be priced out of the market by those who do borrow) then that makes the banks slavers, no?
So why do we tolerate slavers? Was the Civil War fought in vain?
That’s a very good question, FB.
I would say for two reasons:
1.) as first-worlders we enjoy our own positions as the beneficiaries of slavery
2.) Western culture glorifies sado-masochistic supremacy and subjection, especially religious subjection, emphasizing [for the poor only, N.B.] current material sacrifice for gains further on in the future, even gains after death.
You may feign not realizing how popular the “Prosperity Gospel” is: i.e. the gospel of “I win, you lose, and God loves winners”. It’s not only the Pope who wears Prada, but Pat Robertson and that reprehensible Graham spawn who enjoy the life of multi-millionaires thumbing their nose at the actual smelly and reprehensible swarthy poor, guilty for their own poverty OBVIOUSLY, and upon whom they merely lavish tracts and plastic trinkets before jetting off to the next photo-op.
You may feign not realizing how popular the “Prosperity Gospel” is Lidia
But I do! One of my favorite Bible verses is:
It is the blessing of the LORD that makes rich, and He adds no sorrow to it. Proverbs 10:22
You can be sure that when the Lord makes rich, it is rich indeed! Such things as health, contentment, love, joy, peace, etc. cannot necessarily be bought.
Ok, well, thanks for clarifying that.
Now I can completely write you off as unconcerned with actual earthly justice in economic terms or otherwise. After all, God capriciously raises or destroys whomever he likes, with sociopathic lack, not only of accountability, but of MEANING. Why you even engage in these discourses is incomprehensible, if you believe that it is all predetermined.
The God character in the Bible is a psychopath, punishing and rewarding without rhyme or reason. To follow this invented creature is a Dada-esque exercise in non-meaning.
Now I can completely write you off as unconcerned with actual earthly justice in economic terms or otherwise Lidia
No, you can’t:
He has told you, O man, what is good;
And what does the LORD require of you
But to do justice,
to love kindness,
And to walk humbly with your God? Micah 6:8
And you don’t know the Lord either:
Thus says the Lord, “Let not a wise man boast of his wisdom, and let not the mighty man boast of his might, let not a rich man boast of his riches; but let him who boasts boast of this, that he understands and knows Me, that I am the Lord who exercises lovingkindness, justice and righteousness on earth; for I delight in these things,” declares the Lord. Jeremiah 9:23-25 New American Standard Bible (NASB)
Step away from your sister and actually read the Bible, I suggest. Furthermore being God is not such an easy task when dealing with humans. You should have more sympathy for Him.
Yes, I can finally write you off.
To be sure, richness is not only monetary, but I don’t see “The Lord”, ANYWHERE, neither exercising loving kindness, nor justice nor righteousness on earth. I look, but I don’t see an invented authoritarian supernatural being’s “delight in these things”. I see some people who are largely not kind, but who MAY be kind DESPITE their religious training.
What I do see is delight in putting down women, putting down minorities, putting down gays or rabble-rousers or those who contest the status quo, all in the name of “Jesus” or “God”, a fictional character explicitly created to allow one faction to “LORD” themselves over other, supposedly lesser, factions.
Why should any of us be born sick and commanded to be well (in Hitchens’ phrase)? How can we be perversely burdened with an existential fault created by a third party, but for which we are commanded to atone? It’s a mind fuck created by crabbed and power-mad freaks like Luther, Calvin and the various popes.
If you -sadly- feel you have anything to gain from it, it’s naught but sickness and pathology.
It’s not just my sister: all my religious relatives of varying Christian denominations are narcissistic sociopaths who use God as an excuse for psychological extortion and for their thwarted sex drives.
I don’t like Calvin or Luther though they did teach me to be wary of human teachers.
I read the Bible and it stretches my mind as I would expect it to if God were its Author.
I suppose you think you could do better if you were God? Not for long, I would bet.
FB, read almost ANY book and, whether you pretend some god character is the author or no, you can stretch your mind. Really, you’re allowed!
I’ve ruined my eyes with reading. I’d give up 90% of the books I’ve read for my vision back but the Bible would never be one of them.
“If Timmy brings 100 marbles to school and lends them to his classmates at 5% interest for the day, and the classmates diligently work to trade and earn and win enough marbles to pay their debts, how many marbles will Timmy collect at the end of the day?”
This fable represents a classic economic fallacy. Money is a circulating medium; the economy is not a musical chairs game subject to sudden halts and liquidation.
As interest is added, the supply of money can increase, or it circulate faster; or both. Like inventory in a goods-based business, the money supply can turn over multiple times per year.
To those who share the Islamic perception of interest as immoral, note that gold (as a monetary base) is non-interest bearing.
Given the chance, I reckon Jesus, Moses, Muhammed and Buddha would bust into the dark satanic mills that print fiat dollars and euros, and smash the presses. Go, prophets, go!
Go, prophets, go! Jim Haygood
Jesus would likely say that inexpensive fiat is the ONLY ethical money form for government debts but that it should not be legal tender for private debts.
One should actually read the Bible to avoid unpleasant surprises and not assume he knows what it says.
@Jim Haygood
“As interest is added, the supply of money can increase, or it circulate faster; or both…”
Credit creates only the loan principal, not the interest.
The money required to service the loan is greater than the original amount.
Where does the money to pay the interest come from?
You are indeed correct in that it’s not a state machine where everybody cashes out at the end of a turn. However, interest /does/ have problematic effects, like skimming off the economic excess created by society and putting it squarely in the pockets of those who least deserve it: the rich fucks. Also it drives people to desperation and forces everybody to work at rates that ancient slave societies slavemasters would have been proud to achieve. Pure insanity.
Especially in a diminishing world where we have far better things to do than effectively pay tribute to a bunch of undeserving scum. We have forests to plant, oil spills to clean amongst other thousands of similar necessities now that the age of illusiory eternal growth is drawing to a close. If you’re a religious type you can think of this as fulfilling the other end of the “stewardship” deal, for the rest of us it’s necessitated by collapsing ecosystems that we need to support ourselves.
These “well-meaning” folks are, as in the story of the Little Red Hen, nowhere to be seen when it comes to contributing to any sort of clean=up or *gasp* “socialist”!! endeavour.
The necessary clean-ups will never be made: we do not have the social means of shaming or other pressure to make that happen; we’ve relinquished it for money.
Businesses extract and make private profits; toxic waste and degradation is paid for by the masses, who are then regaled with the epithet “deadbeat”, as though they were entirely responsible for their own disenfranchisement, poisoning and impoverishment.
The wealth Mitt Romney is able to deploy and manipulate Comes From Somewhere. It comes from Other People’s Money and from the Earth itself; it in No Way belongs to him nor began with him. He’s just been born into a better position to unjustly corrall and deploy a lion’s share of the Earth’s wealth.
Just as I have been born into the 1% of the world, Romney was born into the 1% of the US population. It’s neither genius nor rocket science. Even a dolt like GWB can see his fortunes soar based on imperial policies wrought by his intellectual betters (Cheney).
> Businesses extract and make private profits; toxic waste and degradation
> is paid for by the masses,
Not really. Mostly it is left there to rot, and the bacteria get to have all the fun. The gulf oil spill is a great example. Most of it is food for bugs.
Unless it is an element, that is… Then it is here to stay — nuclear waste notwithstanding.
I meant “paid for” in non-monetary terms, as well. The 1% can probably avoid most pollution, but nuclear poisons will be tougher.
No doubt Cheney and them have private bunkers.
Good luck to ’em.
I like this post for its accuracy and narrative simplicity; it clearly illustrates that money does not grow, only debts can spontaneously grow. And it illustrates that all money and debt are just tabulations and agreements on paper, hence they can be changed, preferably via respectful and lucid, negotiation.
The next installment will be a fable about limited resources. That will be interesting. I actually believe our resources are limited. Both physically and morally. The news about Mongolia lately, about the herdsmen’s aquifers being appropriated by the national government for use by Ivanhoe and Rio Tinto is a case in point. And fracking here. And one of my underlying questions is why do we need all of these minerals and sources of new energy when we could conserve and recycle what we have and use it wisely. Money and “development” are in the same mad rush as an arms race. Purely for an advantage.
This explains why Timmy lied to the teacher. He really only gave his classmates 50 marbles and he gave the other fifty to his boy scout troupe to defend and protect him. So these 50 marbles did not even make it into the marble economy at all. Tho’ they still could. They bought some way cool equipment.
Like Jamie Galbraith said yesterday, the big obstacle to the world running a clean and efficient economy is fear. Sort of like the laws of conservation (above) making us a little paranoid. So in China funds are poured into really dirty coal mining and use because coal is less vulnerable to military attack than that big ass hydro power project on the Yangtze that could be hit with a missile and flood out half of China. Etc.
> And one of my underlying questions is why do we need all of these
> minerals and sources of new energy when we could conserve and
> recycle what we have and use it wisely.
Neither conservation nor recycling can be 100% efficient. Some will be lost to entropy. This can be anything from carnot inefficiencies to the great pacific garbage patch. So, to the extent that we need the amount of stuff we consume today, some of it will need to be generated new each time.
The other answer is that in order for certain people to become rich, they need you to buy what they are selling.
Please excuse me for this but, I think this posting and the comments show that it’s time for everyone to have a read of Frederick Soddy’s “Wealth, Virtual Wealth and Debt” for an understanding of the physical, moral and, yes, legal, framework that is truly at play in today’s modern monetary economy.
It ends up somewhere akin MMT’s thematic base (Knapp, Lerner, Minsky) but without the Warrenisms like:
“The government neither has, nor doesn’t have, any money”.
And also that foundational MMT paradigm:
“Taxes and Bonds do not, and are not capable of, funding government spending”.
For the Money System Common
Thanks.
For a single page of Soddy at his most easily understood, try this link:
http://books.google.com/books?id=glqnzC-TLPMC&pg=PA97&lpg=PA97&dq=soddy+arch-enemy&source=bl&ots=I9ExjliIPu&sig=pc6Y5lob2v04ofXthlyopVQDFmw&hl=en&sa=X&ei=aEG-T9iODK_16AGsrvGwCQ&ved=0CEoQ6AEwAQ#v=onepage&q=soddy%20arch-enemy&f=false
In case the link is transient, it’s an excerpt from his 1943 pamphlet “The Arch-Enemy of Economic Freedom: What banking is, what first it was and again should be,” which appears in David Boyle’s 2002 book “The Money Changers,” displayed as a Google preview.
Boyle seems to think Soddy a bit of a crackpot, but the excerpt holds up brilliantly today.
Thanks.
I had not seen that Doyle book.
Not quite sure why he think Soddy’s monetary knowledge started by studying the great depression.
Sody’s “Wealth, Virtual Wealth and Debt”, which I think really informs a lot of this discussion, was written in ’26, before the economy slipped on a banana peel.
Could you give us a short synopsis please. I’m getting too lazy to leave my computer screen.
It’s only a page, but, for convenience, here are two paragraphs of near-Soddy, further tightened. (Soddy won the Nobel in Chemistry, 1921 for his work in radioactive isotopes.)
All money is now a debt owed by the banks to the owners, and owed to the banks by the banks debtors. The consequence is that it can never be repaid. On the contrary, it must ever increase with every increase in the population and in the power of science and invention to increase the production of wealth…. The very idea is crazy, though now so firmly rooted as to be taken as natural order, that agriculture and industry upon which all life depends can only operate as debtors to the banks…. For the best part of a century, the bankers have known that simply by reducing their fictitious loans, they could bring down the proudest and wealthiest nations of the earth at their will.
It is the weapon that has reduced the ostensible internal political government to a sham and renders the nations naked and exposed to external monetary domination, universal, unsuspected and supreme.
For the best part of a century, the bankers have known that simply by reducing their fictitious loans, they could bring down the proudest and wealthiest nations of the earth at their will. Frederick Soddy (Nobel Prize for Chemistry in 1921)
The question then is how to kill the banks without killing ourselves. It’s not that hard:
1) Ban further credit creation.
2) Bailout the entire population equally with new full tender fiat till all credit debt is paid off. Meter the bailout to just replace existing credit as it is paid off.
3) Payoff the National Debt as it comes due with new fiat too.
4) After the bailout period, allow true private currencies for private debts only. This would allow government to freely spend ala MMT but without risk of damaging the private sector via the “stealth inflation tax”.
The perpetual motion delusion of living on debt has arisen in the following way, Soddy says:
Because formerly ownership of land – which, with the sunshine that falls on it, provides a revenue of wealth – secured, in the form of rent, a share in the annual harvest without labor or service, upon which a cultured and leisured class could permanently establish itself, the age seems to have conceived the preposterous notion that money, which can buy land, must therefore itself have the same revenue-producing power [Wealth, page 106].
If debt and money are the units of measure by which we account for and keep track of the production and distribution of physical wealth, then surely the units of measure and the reality being measured cannot be governed by different laws. Soddy’s “acid test is that no monetary accountancy be allowed that could not be done equally well by physical counters” (The Arch Enemy, page 24). If wealth cannot grow at compound interest for long, then debt should not either. If wealth cannot be created ex nihilo then how can we allow money (debt) to be created ex nihilo (and just as easily destroyed)? Worse, how can we tolerate the fact that money is both created ex nihilo and lent at compound interest, while at the same time serving as a unit of measure for wealth which is incapable of either of those “conjuror’s tricks”?
And peak everything is not a “fable”.
http://richardheinberg.com/bookshelf/the-end-of-growth-book
“And peak everything is not a “fable”.’
have we reached peak human creativity?
mansoor h. khan
“Have we reached peak creativity?”
Certainly not. But we are working with a fixed toolkit called a finite planet and energy resources so entropy and the laws of diminishing returns are definitely in play. I can’t wait for the latest Hazmat suit design to come on the market.
Susan, it’s not much more than asking the simple question: “If you lend me $100, and in a year I must pay you $105, where is the extra $5 to come from?”
In a not-so-populated world that annual $5 or more came from conquest of lands outside the current monetary system (free money! hurray!) That’s been the sleight-of-hand that’s propelled Western colonial, and now global industrial, “growth” for the last few hundred years: faking that OUTSIDE inputs could be fraudulently racked up as INTERNAL growth credits to the system.
As a physical scientist, Soddy easily saw through this charade, and tried to explicate the earth’s physical limits and what meaning that had for industrial production. For his trouble, he seems to have been mariginalized from the 1920s to the present day.
This is a responce from a conversation I just was having ( indavidual has not read soody but is aware of him), care to critique it?
His views seem to parallel Gesell’s on the un-nature of value-holding money and the collective disdain we share for the unearned wealth extraction that is interest/usury. Gesell’s response was demurrage (rotting) money, but our money/unit of account today rots (price inflation, admittedly unfairly) and you can see how easy it is to attack for not holding its value. That said, it’s one thing for holdings of money to erode over time, it’s another to erode the unit of account itself. For sure, the illegitimate growth of wealth through interest bearing debt must be a prime driver of growth, but it’s inaccurate and unhelpful to couple debt with interest. Money itself is demanding that we separate debt from interest; something we’ll find very hard to do whilst we follow the monetarist doctrine of commodity money. All historic attempts to challenge usury have been normative, focussing on its morality, as if that were in any way sufficient to encourage the holders of money, or those who are held accountable for others’ debts, to lend free of interest. Of course, this is impossible. The situation is a serious one; if we do not separate debt from interest, the attempt to force out usury will result in the loss of our greatest monetary technology; surely one of the great advances of civilisation. Money IS debt, but only in our intellectually poisoned corporate slave culture is that a problem. Money which represents a debt on the part of the promisor never had to be borrowed nor loaned, so it absolutely does not justify interest. It does, however, need to be accounted for, and that involves costs. Solving the macro economic problem of ecology, then, might be possible by pitting the true instincts of man against the machinery of empire which compels him to produce and produce and produce, so often in conflict with his interests, wishes and values. By undermining so much of the machinery of empire, we will return economic power to the individual; individuals will now be in a position to refuse to power that machine, instead investing their productive energies in their communities and families; those areas which return real value in life. There can be no doubt that the empire we slave under is born out of collective economic compulsion, brought about in large part by the extraction of wealth through interest (and other parasitic endeavours). Truly uprooting the rationale behind interest and this is a problem I believe we can go a long way towards solving.
Skippy… thanks in advance if you chose to. Ta.
“collective economic compulsion”. This individual gets it.
Skippy, I find Ivan Illich another good resource.
It’s kind of crazy that we have had all these bellwethers who have known what’s going on, and yet we have to practically go trash-picking, at this late date, to find the moral and practical compasses they left behind but which society discarded as worthless.
I’m just getting into Kropotkin’s “Fields, Factories, and Workshops” and am finding interesting fare there. He’s describing from a near-contemporary view (1901) the birth of the industrial era and the massive dislocations it engendered, now distant in our collective memories.
So far, I’ve seen a number of interesting ideas, most of which leave out some important pieces of the puzzle.
One of those pieces is the idea that sometimes money is borrowed in a way that creates new value. The beneficent capitalist borrows money (or has money) and then gives his workers enough money to keep eating while they do something that creates new items of value. This is the original fairy tale that is supposed to describe the capitalist system. There as still those who base their moral arguments on the “Theory of Surplus Value”.
In a monetary system, the money supply has to increase to cover the newly created items of value. If the newly created items are mud pies, this could be a problem. The bookkeeping says that new value has been created, but reality and the “market” might not agree.
In other cases, money is borrowed so that the workers can keep eating while they learn new skills that make their future labor more valuable. The new skills may or may not have any real value. The value of the piece of paper obtained varies depending on whether it says Harvard or Kaplan University. The debt incurred is very real.
Sometimes money is borrowed for a good time on Saturday night. The only new value produced is a set of pleasant memories that have their own kind of value.
I’ve no doubt left out umpteen other kinds of borrowing, but the key idea I am trying to convey is that the bookkeeping does not necessarily have anything to do with “reality” – whatever that is.
The beneficent capitalist borrows money (or has money) and then gives his workers enough money to keep eating while they do something that creates new items of value. Gerard Pierce
The capitalist does not borrow existing money. Instead he is extended credit – new money created in exchange for a promise to repay that money plus (non-existent in aggregate) interest. But where does the purchasing power for that new money come from? It is stolen from all existing money holders.
The so-called “beneficent capitalist”, if he borrows, is thus using the worker’s own stolen purchasing to employee them!
And as he automates to dis-employee then!
And come the revolution we will all LIKE cherry pie.
Do you think cynicism is a survival trait?
In this case, I think the teachers should just cancel the other kids’ debts and give Timmy a paddling. All he did was distribute his marbles and then do no work himself. Why should he leave with any more marbles than he came in with? The other kinds apparently did various kinds of productive work, and then spontaneously developed a system of exchanging the things they made for marbles. Timmy had nothing to do with that, since the kids could have used any other objects in the classroom, even balls of lint from their own belly buttons, to facilitate and keep track of their exchanges.
Now, if the teacher thinks the marble system helps the kids work better, then by all means she should bring in her own marbles and introduce them into the classroom. Then tell the little parasite Timmy to clean the erasers so he learns the lesson that profit should only proceed from work.
For me, lately, the moral dimension of money is that it represents the significant part of my life spent to “earn” it. Because my life is valuable to me, the money I earned and managed to save is especially valuable to me because it is symbolic of my life. Yes, money is a medium of exchange and a store of value. But I found it necessary to spend my working hours at a job I did not find particularly fulfilling, and I would have preferred to spend my time otherwise, perhaps not all in remunerative endeavors. In a way, my money was, and is, my life.
The rentiers seem to have the wherewithal to spend their time as they please, unconstrained by economic circumstances. The poor folks at the bottom of the economic pyramid seem utterly unable to spend their time as they wish, as they are forced to work multiple part-time jobs to pay the rent and eat. A relatively few people get to spend their days as they wish — most people are compelled to spend their days working to pay the cost of living, and to repay debt.
For anyone who has had to work for a living, money has a moral dimension tied very closely with one’s life. Usury is bad enough — widespread financial fraud by the rentier class may become intolerable. On a global scale, national looting by such as the IMF may become intolerable. The world is in thrall to the bankers. The bankers want my money. I think they would be happy if I were to lose all my marbles.
“For me, lately, the moral dimension of money is that it represents the significant part of my life spent to “earn” it.”
citizendave, what exactly have you been doing, that the Earth owes you some big splurge or something?
“Working hard” alone doesn’t cut it for me. Lots of misguided and even sociopathic people have undoubtedly “worked hard”.
Are you doing something that takes away from the Earth and, as a by-product of that, from humanity? Or are you doing something that protects the Earth’s capacity to host us along with all the other organisms which sustain life as we know it?
IMO, there is no other valid occupation than the latter these days.
Sorry, I realize I was too harsh.
We are all encouraged to squirrel away a surplus when a.) more powerful entities than ourselves have open access to it and can strip us of it, and
b.) merely the act of constant accumulation of surplus is harmful to the biological and thermodynamic systems which make life possible.
Lidia, I appreciate your comments, here, and elsewhere, and elsewhen.
When I wrote my comment earlier today I was completely sober. Now, at midnight south of Milwaukee, not so much. But I have often wondered whether the (slightely) intoxicated mind is in closer touch with reality than the sober mind, which has learned how to emulate the adult consensual reality that allows us to function in polite society, and to avoid getting involuntarily committed to the psych ward. I have come to believe “in vino veritas”.
I almost invariably struggle here at NC to express my meaning clearly and succinctly. I suppose I have failed again. I was only talking about my own experience to illustrate what I believe to be a nearly universal human experience of working for money, that most of us end up taking whatever job is available, even though it’s not really what we would like to do. I believe that much of current global economic activity is unnecessary. It exists to generate wealth for a few people. We humans have no common purpose for our economic endeavors, we do not work shoulder to shoulder in common cause.
Our lives, every last one of us, are precious. If I were religious, I would say “sacred”. So we spend our lives working — because we must. It’s the system we were born into. The banks treat customers as victims, a chance to extract lucre. We take on debt — everybody does it, so why not? We end up stuck for life.
I would love to change the world. I believe the current capitalist system would consume the planet in short order if it could, without conscience or remorse. I believe we humans could change our political and economic systems, we could undertake an effort like Kennedy’s moon landing, or of Apollo project proportions, and transform our society and economy. People laugh because it seems improbable, but I remember the effect of President Kennedy’s moon landing project on my friends and me in high school — it was profound and transformative.
So when I complained earlier today about working in a $h!t job, it was about what we could be doing instead. My life is precious to me, and I assume your life is precious to you as well. And many people feel the same way. Life is short, and then it’s all over. And here we are getting robbed of our meager life’s savings by the Masters of the Universe, who don’t care a fig about us, other than my net worth for possible extraction. We may be diminished in their eyes, but we should not be diminished in our own.
So, Lidia, it was not intended to be about me. It was about all of us, and the planet, and the future of the planet, for the sake of Nature, and the babies, current and future. If you are still not persuaded as to my good intentions, perhaps I will try again after some sleep, and the restoration of relative sobriety.
“Working hard” alone doesn’t cut it for me. Lots of misguided and even sociopathic people have undoubtedly “worked hard”. – Lidia
I checked my work and didn’t find the concept, nor the phrase, of “working hard” contained therein.
FWIW, I am currently unemployed, or retired, depending on your point of view. Therefore, I am not actively degrading environmental quality, or at least my personal environmental impact is somewhat diminished. I occasionally publish exhortations to save the Earth. Am I part of the problem, or part of the solution? Time will tell, eh?
b.) merely the act of constant accumulation of surplus is harmful to the biological and thermodynamic systems which make life possible. – Lidia
Have you contemplated the problem of supporting yourself in old age? The accumulation of some wealth during the working years is widely believed to enhance one’s experience of life while growing old. Social Security is great, but in my circumstances it is insufficient to pay the entire cost of living. And I am currently enjoying good health.
citizendave, again I apologize, because it was late and I mis-read this phrase “For anyone who has had to work for a living…” I think I read “had” as “hard”.
I’m also unemployed/retired. While I am not currently walking my talk, I’m making every possible plan to be able to do so to the best of my ability in the future. I need to do a trans-atlantic move, get a green card for my husband, and bring my elderly mom into our household first, all of which I am working on this summer. I have a goal in mind, and I’m putting one foot in front of the other to get there.
In the meantime, I bike to the market (even a bike is an industrial product requiring ongoing inputs like rubber for tires and tubes).
It’s a bracing mental exercise to perform certain applications of “functional decomposition” in regard to what we all do each day, and why, and with what resources.
‘profit should only proceed from work’
If value is produced by labor, then money — moral money — would represent labor, either labor already done (savings) or labor to be performed (credit). Money could not be invoked ex nihilo (except as part of a con game).
This kind of money could be created by the laborers themselves, based on either goods they had already produced, or which they could reasonabl anticipate producing in the future. Transactions between strangers could be verified by a network of laborer-owned credit unions, eliminating the parasitism of private banks and the government.
I think it’s probably just a hopeless endeavor to try to keep the value of money rigidly fixed and settled by backing it with anything – some measured quantity of labor, some commodity, some other form of money – and establishing fixed rates of redeemability.
Then money is always going to be a sort of con? That doesn’t seem right.
Money does not have to be a con IF it is created ethically. Common stock, for example, is a private money form that in principle (no pun intended) is entirely ethical, democratic (at least per share), and one which does not require usury, fractional reserves or PMs.
Not a con, but it’s value relative to various goods and services, and relative to other currencies, should be able to float to some degree in response to both market forces and monetary policy decisions. Anyway, I would like to see the public taking a more active role in monetary policy, and start to claw back some of the monetary authority that has been delegated to a central bank. Then they can decide whether the general good is best advanced by some system of rigid pegging, or by allowing greater flexibility.
I wasn’t thinking of prices fluctuating around averages per commodity or service as a con in itself (although it offers opportunities for cons), but of deliberately induced general inflation, produced either by printing money or expanding credit through state power. That is certainly a con — the ‘lenders’ (the persons holding currency etc.) are given back less than they ‘lent’ when they exchanged something for it. If they labored they exchanged part of their lives for the money, of which they are now being deprived. That strikes me as an immoral enough form of arithmetic.
This analogy only applies in a world where people eat marbles, watch programs on marbles, or take vacations on marbles, etc. MMT is trivially valid in that way.
After reading most of the comments, I’ve decided to opt out of the system……..Most of the comments try to de-construct an “economy” without bringing in the value (or no value) of human behavior.
“Behavioral Economics”
“Money” has no “moral compass”. Therefore morality and money used in the same sentence is an oxymoron.
Ony human behavior can “assume” an moral compass.
And, as one commenter above alluded to in some form…we are just “consumers” in this economy….nothing more or less. If we don’t “perform” the economy suffers and we all go down.
So, just go shopping!!
There definitely is a very large moral dimension to the decisions that have to be made about debts, budgets, spending and public investment in Europe. The authors’ suggestion, I think, is that the current crop of European leaders is overly fixated on one particular aspect of that moral dimension – the issue of so-called “moral hazard” – and is ignoring a vast realm of weightier moral considerations.
Right now, Merkel looks like an insane mother who has decided to lock her children in a closet, naked and without food, until they develop better table manners. Of course, it is pretty hard to cultivate an improvement of one’s table manners if one has been reduced to eating the wallpaper and one’s own feces in a dark closet.
And it goes without saying that the mother who is satisfied to end up with a brood of dead children in order to prove a point of manners has succumbed to some kind of clinically demented moral fanaticism.
Your analogy is completely wrong. Merkel is more like a company that has been selling the other Europeans goods and services on credit for a long time, and is now realizing that her “assets” are not really valuable, and the rest of Europe is trying to convince her that the only to make the “assets” valuable to to buy more of them, not less, and to keep on churning out real value for paper promises. The jig is up, only the Germans seem to realize this.
The jig is up, only the Germans seem to realize this. Yancey Ward
Then let’s end it. Ban further credit creation and bailout the entire Eurozone population equally, including German savers, with new fiat.
@Yancey Ward
Are you saying that Germany will soon have to start eating catfood too because they are out of money?
Are we going to shut the world economy down because we don’t have enough of those little pieces of paper needed to put labor together with resources to produce quality of life for our citizens?
And no, we aren’t anywhere close to running out of resources for most things. We need to learn to consume less unnecessary junk though.
Production doesn’t necessarily mean producing stuff either. What does a teacher or a fireman produce?
Since most of our needs can be produced by a fraction of the workforce, we can just pay everyone else to keep busy doing what they want so capitalism can live.
we are way beyond any conceivable sustainable rate of consumption.
The jig will be up for Germany as well as the other EZ countries if they insist on punishing austerity for everyone they think has misbehaved. As usual, the Germans think they are too pure and white and perfect and self-sufficient to be infected by the problems of the swarthy European periphery, but their habitual bigotry is going to get the better of them again. They are all in the mess together, whether they choose to grasp that fact or not.
Germany doesn’t have to advance its own credit. The ECB can absorb comprehensive spending initiatives onto its own balance sheet, and it is implausible to think that the spending will be inflationary so long as Greece and the other periphery countries are mired in a depression. Businesses facing depression and collapse don’t raise prices when a fresh breeze of paying customers blows their way.
Europe needs to invest. There is no starvation path to economic health. Unfortunately they are facing a dearth of far-seeing statesmen and stateswomen.
Timmy is not stupid. Why would he let them off the hook by allowing bankruptcy?
He has the laws changed so that bankruptcy is either impossible or very difficult.
He takes a marker and charges a VIG that makes all the others indentured servants for life.
Any who do escape via bankruptcy or try to whistleblow to teacher are made examples of (he hires bullies and has his minions shun them).
During the whole process he brow beats recalcitrants and brags of his riches/popularity.
Everyone focuses on the marbles and rules of the game without considering the potential for bad actors disrupting/manipulating the game (whatever the game may be) to their benefit.
Bingo, we all need to lose our marbles to understand the reality.
Good one!
The usury for counterf**t money folks have really over-played their hand (sadly, lives have been lost). There are just too many victims to ignore or to blame on moral defects (as if bankers have any right to judge morality).
If the school has a free market and assuming I can buy marbles for 5c each (or lower) in the grown-up’s world, I would be buying 50c lunch tickets for 8 marbles per ticket (with other prices for all the other goods and services a school has to offer – cigarettes, tins of coke, pornographs, knives etc etc, normal school). So the kids who borrow 20 marbles now for 21 at hometime so they can pay older kids to write the maths homework they didn’t but which is due after lunch, could sell me their stock to repay Timmy and avoid failing maths. Timmy would get his 21 marbles per customer no problem. The only caveat would be if Timmy has govt. support for a marble monopoly in which case the debtors do become slaves and a lot of beneficial trade is killed (or factored in cash, cigarettes or whatever) OR the school has banned (and can enforce the ban) the lending of marbles at interest in which case Timmy loses his marbles or never lends them in the first place.
If you ban lending money for a profit you have to ban lending anything else for a profit (so no more renting cars,
boats, flats etc.)
WarrenCelli,
if deception is the strongest force in the universe there is no point in reading blogs.
mansoor h. khan
He reads…. and comments on blogs, comprehension problem?
Skippy… In my opinion… he has a much better grasp on humanitys condition, than your mob does, by orders of magnitude.
PS… got anymore of that dancing girls pron?
Gawd Head *sovereigns* (*to create) gained validity to rule… with their… WILL… via Preists. Preists extracted commoditys from the population as tithe’s, so – soveregin will – could create its unique reality.
Gawd = Sovereign… at the birth of that particular notion.
Every thing from then, till now, is just an extension of it.
Seemingly… untill that shite is sorted out, what is and whom is Soveregin or we could just chuck that crap ideal in the dustbin of armchair metaphysical history, we will repete.
Realists view sovereignty as being untouchable and as guaranteed to legitimate nation-states.[citation needed]
Rationalists see sovereignty similarly to Realists. However, Rationalism states that the sovereignty of a nation-state may be violated in extreme circumstances, such as human rights abuses.[citation needed]
Internationalists believe that sovereignty is outdated and an unnecessary obstacle to achieving peace, in line with their belief of a ‘global community’. In the light of the abuse of power by sovereign states such as Hitler’s Germany or Stalin’s Soviet Union, they argue that human beings are not necessarily protected by the state whose citizens they are, and that the respect for state sovereignty on which the UN Charter is founded is an obstacle to humanitarian intervention.[14]
Anarchists and some libertarians deny the sovereignty of states and governments. Anarchists often argue for a specific individual kind of sovereignty, such as the Anarch as a sovereign individual. Salvador Dalí, for instance, talked of “anarcho-monarchist” (as usual for him, tongue in cheek); Antonin Artaud of Heliogabalus: Or, The Crowned Anarchist; Max Stirner of The Ego and Its Own; Georges Bataille and Jacques Derrida of a kind of antisovereignty”. Therefore, anarchists join a classical conception of the individual as sovereign of himself, which forms the basis of political consciousness. The unified consciousness is sovereignty over one’s own body, as Nietzsche demonstrated (see also Pierre Klossowski’s book on Nietzsche and the Vicious Circle). See also self-ownership.
Imperialists hold a view of sovereignty where power rightfully exists with those states that hold the greatest ability to impose the will of said state, by force or threat of force, over the populace or other states with weaker military or political will. They effectively deny the sovereignty of the individual in deference to either the ‘good’ of the whole, or to divine right.[citation needed]
http://en.wikipedia.org/wiki/Sovereignty
Don’t get bent if wiki does not define your belife the way you see it, that just a personal interpretation thingy… see beardo.
Skippy…. Monatary Sovereign…. hahahahah! The preists are at it again, like Mosler et al. The real Sovereigns are the 1%ish, they are capital incarnate, gravity wells of human toil, some are Monarchs, some from inherited famialy wealth, some from rapid accumilation (adept at game play and creating power bases – relationships), various groups incoperated for protection and amassed projection of will, etc. They are transended of the nation state* (*kettles), they rewrite boundrys when it pleses them, they are in control of the political apparatus (voting lol), although they are not united as one. When they fight we die, when they agree, we still die… in servitude. In this enviroment, an indavidual, can only endevor to recive reward for furthering their wills desire or recive deminishment.
PS. voting is just like going to church, even if you don’t believe, but, are afraid of social excommunication, loss of opportunities for reward in their system, social ascendancy. In the end… you just valadate the hole lie. Good luck voting the creators… cough… sovereigns out of office… hint… they don’t have one.
Case in point:
The motivation of the rich has long been a topic of interest to psychologists. Dr Paul Wachtel, a professor of psychology at the City College of New York, published a landmark paper a decade ago called ”Full Pockets, Empty Lives”, in the American Journal of Psychoanalysis.
His research found one of the great pitfalls of the wealthy is a compulsion to continue to accumulate even more. ”The pursuit of money and material goods as a central aim in life comes at a rather high price,” he wrote, noting that money plays ”a strikingly small role” in a person’s real happiness or wellbeing.
In fact, intimacy and family life are often sacrificed. Envy feeds the greed impulse, argues Wachtel: ”We may want not just what others have but more than others have, or more for more’s sake.”
The super-rich are seen to take their wealth accumulation very personally, with their view of their self-worth apparently characterised through their achievements.
Read more: http://www.smh.com.au/executive-style/management/billionaires-winter-of-discontent-20120508-1ya8w.html#ixzz1vqMHOrAL
My favorite part…
Australia’s fifth-richest person, with a fortune of more than $5 billion, the mining magnate Clive Palmer, has emerged as a walking headline, this week blithely announcing within hours that he would not only run for preselection for the Liberal National Party in Treasurer Wayne Swan’s Brisbane seat of Lilley, but that he would also build Titanic II.
That was a few weeks after making bizarre claims that the CIA was backing green groups in a bid to kill the Australian coalmining industry. Jovial it may be on the surface, but Palmer has been engaged in constant spats with the government, football authorities and business partners.
Palmer, who bought a soccer team in China to raise his profile, also owned Gold Coast United, running foul of the sport’s authorities before Football Federation Australia withdrew its licence.
Palmer has launched an $8 billion lawsuit against rail company QR National for interfering with his coal haulage plans. He has been in a spat in his property investments including the Coolum resort in Queensland, terminating the management agreement with the Hyatt group and calling in administrators.
A spokesman for Palmer said the billionaire was ”using his voice to voice his opinion, as anyone should be able to. He’s just fortunate his voice is heard.” Asked if it was his status that ensured it was heard, the spokesman said: ”He’s just a normal human being who’s heard, but it’s taken many years to have that happen.”
Read more: http://www.smh.com.au/executive-style/management/billionaires-winter-of-discontent-20120508-1ya8w.html#ixzz1vqTfKmX8
Skippy… the old Vs. new, the state Vs capital, the wealthy Vs everyone else. Marbles[?] math to describe power relationships on this economic playing field? Never fear, the laws of the universe always enforce themselves in the end. Finance vs. Science… well my bet is on the latter and not the former.
Which just goes-to-showya that a functioning brain is really not necessary to become a billionaire.
Just a pair of you-know-whats often helps, however.
”The pursuit of money and material goods as a central aim in life comes at a rather high price,” he wrote, noting that money plays ”a strikingly small role” in a person’s real happiness or wellbeing.
Yawn. Any reader of the Bible knows that.
Eaxmple: He who loves money will not be satisfied with money, nor he who loves abundance with its income. This too is vanity. Ecclesiastes 5:10 New American Standard Bible (NASB)
Example: For the love of money is a root of all sorts of evil, and some by longing for it have wandered away from the faith and pierced themselves with many griefs. 1 Timothy 6:10 New American Standard Bible (NASB)
@beardo… out of the hole comment, you chose to segway into a bible verse, typical injection of valadation of – your belifes – as unique and unassailable thoughs, rubber stamped by gawd. Hint…. this condition was observed long before your book had a page in it.
Why not try and comprehend the issue with languistic meaning, history, the implied, and nebulous import this one word holds.
It is… the cornner stone of what we all talk about… here… eh. Whom has the power of creation and whom does not and why.
Skippy… always picking snipits to address and not the hole, eh… beardo…. a priestly act IMO. Bible verse… YAWN….
This isn’t about anythign other than arithmetic.
Someone tries, correctly, to point out that money is nothing but an identity, a unit of account.
All of the people who long ago forgot how they learned math are now assinging “moral values” to these numbers. Is one better than 2? What about 13?
When you start using aritimetic, you learn that one is one, two is two, and 3+3=6. There is no morality associated with it. It’s either correct, or incorrect, by definition.
But, some many commenters don’t want to hear this. You can’t have one without someone else not having one, and that’s not FAIR!!!!
And then, everyone dresses up a mathmatical identity, which in some deep cavern of their brain is obviouly still there, with theromdynamics and physics, trying to claim some sort of moral high ground in saying that 4+4=7. It does not.
“Should” it? I don’t know. I like the numbers we use. They seem quite useful. But this is a moral question, and entirly irrelvant to the discussion.
I can’t wait to be explained that “peak resources” is indeed a fable.
Sure!
First the creator said I could ass rape this world too my little hearts desire. Then when the friction from that exorcise blows up this joint… I can go live at his house.
Skippy… Peak… I… sounds better methinks.
skippy, you’ve a way with words, my friend…
Posted way up the chain by mistake. Meant it to be here…
Wow. So many comments, I’m going to post my initial take then enjoy everyone else’s. I’ve already seen some very good ones.
First, my apologies if I’m mistaken, but I take that last paragraph to mean it falls into the category of “fable” that such a thing as real resource consumption/ecological degradation limits exist or that some magic “fix” is in the offing. I look forward to reading that post when “another day” comes this way, and will try to keep in mind what a great job we’re doing distributing resources amongst the 7 billion people we have now. I’ll suspend belief in those silly images I have of people rifling through enormous urban garbage heaps living in tin sheds at the base of the pile, and the billions more in similar wretched straights the world over. And even though I’m not supposed to confuse “money” with an economics problem (population/resources/eco-damage), I’m sure with enough digital zeroes it’ll be a snap to create what it would take to provide for all of us properly, like good top-2 quintile Americans.
Second, just to demonstrate maximum fairness, suppose a clean debt slate and other non-crisis conditions. I’d like to hear what, in principle, would prevent a system based on the more rigid “Austrian” or other “hard money” doctrines from being as fair re income distribution, employment, public spending, taxation, regional imbalances and the rest as anything else – assuming honest, decent, compassionate, fair men and women in leadership? Could it not, if directed by the public, place a limit on personal wealth, for instance? Could there be an “Austrian” money socialism (and please, no cheap “nazi” shots) as it were? Would that be impossible for arithmetic reasons? Are there no initial conditions that would allow it to work going forward? Ain’t someone going to argue a couple of those kids figured out how to make the most of their marbles in order to generate more marbles? Has anyone noticed you have to have money to make it or lose it? The 1% is only 1%, who would still be fabulously rich if they lost most of their wealth. I suspect, therefore, they are not the political problem so much as the next 19%.
Similarly, could there not, in principle, be some form of despotism or gross systemic inequity under an MMT regime? I’d just like to see it spelled out, because from my perch, what I seem to see here at NC from devotees of MMT is itself not at all clear. Is this about a view of money, or is there any clear political philosophy entailed? If the latter, why present as a money theory, not a political/economic/social alternative? Is it about nicer capitalism or something quite different? Is it intended to be a form of socialism, but can’t say so? Or, what I have sometimes wondered, is it the equivalent of looking only at the throughput and to hell with what the output actually is, who determines it to what end and what is new management’s connection or claim to output/wealth? Can it imagine categories other than “wage” or “job” or “growth” to ensure all who need are provided for?
Anyway, it seems to me the heart of the money/debt problem for “advanced” nations when it comes to the “hardness” of money owned by the monied vs future commitments is: what do you do when an entire generation now lives an entire generation longer than a mere 60 years ago, so you now have 4 generations alive at once – and in particular those of the truly affluent elite(the ones who still believe they have money)? Isn’t that what the fight is ultimately all about? Will the current elites (top 20% domestically and globally) and their children maintain their wealth, status, position, privilege, advantage etc. in a demented, hyper-competitive, technologically accelerating global race straight into the wall? Who is going to break the news to them about what they think they own?
You have multiple point
1. Re resources – you are misreading it. He is just saying that this is indeed a real problem but it is not covered here.
2. Re hard money – you missed the point about deflation potentially imposing hardship (via too high real interest rates) and rewarding hoarding. True you could tax and redistribute to ensure fair distribution. But having the money supply lag behind growth makes paying debts much harder.
3. Yes – MMT tends to attract left leaning people, but MMT is basically a point about monetary theory not a specific policy prescription.
4. I think this is issue is totally exagerated. Dependency ratios just after the war were much higher, and that was error of high growth rates and high wages. We live now with 10%+ underemployment which is also dependency. We also have much lower birth rates and female labour participation is much higher, and people remain healthy longer and fewer jobs are physically exhausting.
FOOD FOR THOUGHT
Analytical Report: The Cost of Low Educational Achievement in the European Union
Dr. Eric Hanushek (Stanford) is the co-author of the above titled report that can be located here.
It has some interesting insights as regards the GDP foregone due to Low Educational Achievement in the EU. Excerpt:
Following the Good Doctor to his own site here there is also an interesting interview:
MY POINT?
Now the question remains, if schooling is a key-factor to enhancing permanently GDP, then what must be done to make sure that all our children are afforded an adequate primary-secondary-tertiary schooling? The European answer is to provide that education as low cost as possible. Meaning that the schooling most often only incurs a cost to the family of the inscription fees – roughly 1000 Euros per annum. (With the exception of the UK on the tertiary-level that has fastened on to a much higher-cost somewhat resembling somewhat that of state universities in the US.)
if we can “invest” in R&D in order to develop products that we and the world wants, why can we not also “invest” (as do the Europeans) in Education that gives us the sort of skills and talents necessary to achieve a higher level of overall GDP?
Or, like Health-Care, have we mistakenly taken Education to be “just another market needing a market-solution”?
Which is not only wrong, but dead-wrong.
Extrapolating from a not necessarily causal connection between educational activities, test results, and individual economic success to subsequent increases in GDP seems to skip over quite a few logical steps and changes of frame of reference. I more or less agree with the conclusion but I would like to get there less fancifully.
While I am not an Austrian, clearly this is Option 3 (of the Default, Inflate or Debase alternatives). Assumimg the plan works as described to reinvigorate economic activity (and I don’t know that it necessarily would), creditors and debtors settle their obligations in nominal, less valued, currencies. This provides some real debt relief to debtors while giving creditors a real haircut. The latter are probably due one for making bad loans and the former are relieved of some of their burden. This all touches the moral question, which I will take a pass on.
However, what about everyone else in the economy, those who neither borrwed nor lent imprudently? Take retirees on fixed incomes for example. They are likely to be penalized by receiving their incomes in less valuable currencies and/or having to pay inflated nominal prices. I would call them innocent bystanders and a part of the moral question I ducked just above.
The scenario outlined must inevitably lead to inflation as economic capacity gets absorbed. When inflation expectations get cooked into the public’s psyches, bad things can happen.
I do not know what the solution is. Were that it were so simple, Anonymous.
There is no morality or immorality about debt.
Debt is debt, that’s all. Cut it, slice it, create it, destroy it – debt will not bleed.
Debtors, otoh, are quite different … one can literally bleed them dry.
But creditors can bleed as well. So the moral question is from whom to extract the most blood.
There is no morality or immorality about debt.
That is untrue, because debt impels excess consumption, which has a moral dimension to it.
Our debt-money system has expanded exponentially, to the limits of the physical world to contain it. In theory, it can expand forever, but in practice it cannot and will kill us all if not abandoned. That has a moral dimension to it.
A universal bailout, including non-debtors to be fair, could be done WITHOUT debasing the currency IF further credit creation was banned and IF the bailout was metered to just replace existing credit as it is paid off.
And though credit-creation (a form of counterf**ting) would be banned, honest lending of existing money would still be allowed. Also, the universal bailout would provide the new reserves for that honest lending.
So an honest lending system would allow a universal bailout and a universal bailout would allow an honest lending system. One hand washes the other.
1) Glad to hear he’s not insane re resources.
2) Note there is not particular reason for deflation if lending has been undertaken responsibly. In any case, why “inflate” via money rather than equitably adjusting to a lower level of production until other policy actions improve conditions (bearing in mind there are some conditions no policy can address).
3) Seems to argue both ways, i.e., what is morally (therefore politically) superior about MMT vs a “hard” money system such as I’ve described, given it’s agreed pretty much all around that at bottom it’s all a political problem?
4)Consider that the first Depression took place roughly when “advanced” countries had produced enough wealth to create a society wherein 3 generations were consistently present and, if elite, laid claim to (“owned”) wealth – in other words, the bulk of the older individuals lived long enough to see their grand-children (today, it’s very often great-grand-children) as a result of enormous improvements in nutrition and sanitation from roughly 1870’s through to WWII.
But even leaving that deep cycle completely aside, it will in any case remain a question of whether existing elites retain their power & transfer it to their clearly privileged offspring largely intact, or if that model is slated for the trash can.
Oops again. This post was meant as response to “Reason” above.