By Michael Hoexter
There is no unified theory in our popular understanding of value: there are the market values of goods and then there are our “values” which we consider to be some of the most personal and even sacred aspects of ourselves. Once people emerge from the realm of necessity or being driven by what seems to them to be compulsions of various kinds, they may feel that they are then making decisions which draw to some degree on their ethical or personal values. People often have the impression that most of their financial dealings have little to do with their personal ethics; the realm of market interaction is viewed for the most part as an area of life controlled by forces outside the self or motivated by our insistent drives for self-preservation and pleasure. There are exceptions: people of often modest means give money to religious organizations, as a way to express something of their ethical values or at least the ethical values that are expected of them by their religious community of reference. And wealthy people will tend to use some of their substantial discretionary income to make an ethical statement directed by some combination of personal commitments and the desire to make a public statement about themselves. Alternatively, if someone controls a business or a portion of a business, they may express personal values by the way they conduct themselves in that business or by strategic decisions they may make, with the important proviso that the business must maintain its solvency.
In civil society, many people attempt to express some of their personal values via politics, in which, often though not always, a clash of different conceptions of “the good” confront each other. There are ethical ideals embedded in political ideas which unfortunately are not discussed openly enough or publicly enough discussed. People donate to political groups and causes as a means to express their personal values, again, beyond and above the market value of the goods and services they buy every day.
In the last few decades, when discussions have turned to the relationship of ethics and economics, the focus has been on the influence of individual ethical choice within the realm of microeconomics: producing more ethical forms of consumption and influencing market choices of consumers and businesses by introducing various price signals, making them act as, in appearance, more ethical individuals via policy-driven self-interest. Ethics is thought to operate here on an individualized level: that the summed decisions of individuals or individual businesses will yield a socially “better” outcome, whether via internal compulsion or helped by social policy. The method of action of most climate change policy is exactly this reliance on “market-based” mechanisms which will cause lower carbon products and services to outcompete products and services, that emit more carbon emissions, occurring within an assumed all-encompassing market. Business economics and marketing have also noticed the segment of ethically driven purchases or at least those that are sanctioned by a hand-wave to some ethical value: goods and services can be marketed to appeal to some combination of the appetites and desire for ethical probity in various admixtures depending on the product, marketer and market.
These microeconomic approaches to the intersection of ethical values and economics, which agree with the dominant neoliberal paradigm, overlook the role that ethical values play in shaping the budgeting process and law-making of government, which in turn shapes the entire economy. In theory, lawmakers and political leaders are making decisions based on implicit and explicit sets of ethical beliefs that are often embedded in, or co-determined by, their political ideology as well as their cognitive beliefs about the polity, the economy, and government finance. In practice, these beliefs and ideology are filtered through a process by which powerful and wealthy interest groups influence and shape the behavior of lawmakers.
If they are democratically elected, popular hopes about a politician’s potential ethical role are often why they are elected as individuals or as representatives of a political group. The persistent wish for higher ethical standards occurs in the electorate, despite the fact of varying degrees of corruption, both, legal and illegal, which will influence, beyond professed beliefs, the effective expression of political leaders’ ethics in laws and government actions. Strange as it may seem in our cynical age, leaders are still expected to represent and achieve “the good,” however defined by a cultural or political grouping, as well as represent that group’s better, secular selves and, therefore, the continued relevance of understanding, exploring and, of course, insisting upon ethics in politics and policy-making. The outrage against legal and illegal corruption is based on frustrated hopes based on an assumption of a potential ethical role for political leaders.
Macroeconomic Accounting and Ethical Principles
In enacting fiscal policy and in what might be called “macroeconomic accounting,” which encompasses the budgeting process of a sovereign government as well as the justifications for budget decisions, politicians make historical compromises with, and commitments to, their ethical ideals in the form of real initiatives and operations of government. Unlike proclamations of ethical probity and the censures of their competitors, that politicians may utter during their campaigns and during their speeches in office, the budgetary and fiscal decisions made by lawmakers are a key component of their effective morality, a morality that has, by design, enormous and differential impact on others.
Whether or not national-level politicians study or are aware of the principles of, and data from, macroeconomics, lawmakers’ budgeting activities are one of the realizations of macroeconomics in practice, therefore, the label “macroeconomic accounting” for the numerical and ethical justification of budgetary decisions. As example, a politician might justify his or her budgeting actions as follows:
“I voted for funding this jobs program (for the good of our people) because of persistent unemployment”
or
“I voted to fund this defense authorization because our people are threatened by this foreign power”
or
“I voted to fund this road building project to enhance the competitiveness of our region”
Numerical analyses may be brought to bear on, either, the rationale or on the budgeted amount for these particular expenditures (or levies), but ethical justification is, either, prior to or, more cynically, must be applied post-hoc to these fiscal operations. A combination of ethical and monetary valuation intersects both in the qualitative choice of a budget line item as well as in the quantitative amount of that expenditure. These valuations may, to a lesser or greater extent, be a “front” for non-transparent political dealing and interest group influence, depending on how corrupted the legislative process is.
The neglect within the past three decades of macroeconomics within academic economics is particularly problematic given that without the support of a vibrant macroeconomics, the decisions of government with regard to fiscal and monetary policy are more subject to political fashion and corruption by powerful private interests. Whether they like it or not, national-level politicians are engaged in practical macroeconomics in spite of themselves. The identification by some right-wing politicians of macroeconomic principles with a “left” political tendency and, therefore, dispensable, is a sign of agnotology, the celebration of, and production of, ignorance to distract from or obscure knowledge. Through ignorance, chosen or otherwise, politicians have a much greater chance of doing very significant social and economic damage and also of being manipulated by special interests. Political opposition to there being a macroeconomics in the first place, opens the door to more corrupt influence by the wealthy and powerful.
Monetary sovereignty within a non-convertible, floating fiat currency system gives politicians a greater capacity to realize ethical ideals as well as concrete objectives via fiscal policy and also enables them to address and at times remediate specific macroeconomic challenges, such as unemployment, poverty, or lagging effective demand. The fiat currency allows politicians to focus budgeting decisions on those decisions’ future impacts on society and the economy, not on the arbitrary relationship between taxes collected and expenditures, which is irrelevant to the mechanics of currency-issuing government finance. Rather than traditional balance sheet accounting, monetarily sovereign governments with a floating non-convertible fiat currency are engaging in the different, but related, activity of macroeconomic accounting. The previous gold-standard or metal based currencies forced politicians to focus on limitations in financial resources from the side of the government, tending to lead to policies that favored those in society who already had access to either personal or corporate sources of liquidity, from which they gain differential advantage.
A fiat currency system enables government to create and deploy financial resources in anticipation of emerging societal needs. The deployment of these newly created financial resources builds real resources that serve existing and new social or environmental challenges, not addressed or ineffectively served by private market actors. A fiat currency allows political leaders to exercise a relative independence of the wishes of the ruling financial and business elites, which in a hard currency system would possess greater influence. In a metal-standard or, in austerity’s faux metal-standard currency regime, fiscal policy tends to represent the interests of stored “old” money that has already circulated in the private sector and that in larger than average proportion landed in the bank accounts of the already wealthy.
Because of its financial power, the fiat currency system is also an attractive object for powerful private interests to seek to control. The austerity drive, though it holds up an outdated vision of the currency system, might actually be seen as an attempt to sequester the benefits of government’s fiat currency system for use by the already wealthy and powerful, in particular the financial elite.
The Creation of Value Via Fiscal Policy
The financing of unique public goods, like the military, judicial system, schools, infrastructure, and cultural institutions by governments, is the central, patently obvious, way that the ethical orientations of political leaders shape monetary value. This the heart and primary rationale for fiscal policy at all, with the government supplying the infrastructure, broadly construed, for society and for markets. These public institutions are the prerequisites for a complex modern civilization to exist.
As the relentless 35-year attack on government as an institution has called government’s provision of these services in question, it makes sense to rehearse what are the (interrelated) ethical principles from which such a fiscal policy would spring:
1) Ethical commitment to the integrity and continuance of the national community (with international interdependence, increasingly some commitment to the community of nations)
2) Ethical commitment to the future and future generations (not only specific individuals or one’s own family, but a generalized commitment)
3) Ethical commitment to truthful data collection and analysis of challenges facing the nation, the economy, and the planet
James Buchanan’s public choice theory, which consciously and unconsciously has been the trend in the philosophy of governance over the last few decades, claims that these ethical commitments are illusory and impossible, as political leaders can only be expected to be individual utility maximizers. The reality of humanity is different than the neoclassical economic theory upon which Buchanan based his political theory: people are both self-interested and community-minded in different measures, the latter of which Buchanan’s theory ignored. Now, we are faced with re-establishing the obvious, that a deontological ethical commitment to the common good is, both, possible and desirable, to create an environment in which politicians can once again have alternatives to institutionalized corruption.
Once a unique public good or project is funded, the goods and services that are required to execute that project immediately acquire a monetary value that previously did not exist. Teachers need to be trained, for instance, or less felicitously, military equipment needs to be invented and manufactured. The government, whether “Big” or smaller, introduces into monetary circulation various “goods” that previously were assigned no or very small value at all. This funding would not have come to pass without political leaders’ ethical commitments to the continuation of civilization in a particular form. The spending then circulates through the private economy via payments to government employees and government contractors, money which in turn “feeds” the private economy more generally, as it is spent again by businesses and individuals. Spending on unique government programs also shapes the private economy to, in part, serve public purposes by, for instance, inspiring young people to be teachers, soldiers, etc.
Sustaining Ethical Values Via Fiscal Policy
Not only does fiscal policy bring into existence unique institutions, goods, and services, but it also works as a supplement to sustain and realize ethical values that would otherwise become marginalized or disappear because of a lack of funding for them. Various social support programs like Social Security and Medicare in the US are examples where fiscal policy realizes the ethical value of caring for the elderly and sick in a society where such care is delivered in part via monetary exchanges rather than via the (unpaid) work of extended family members. There are more extensive supports for sustaining traditional and existing values via fiscal policy in some of the European social democracies, in particular in Scandinavia, than there are in the developing world and in the US.
Throughout the history of developed capitalist societies, poverty and vast social and economic inequality have been diminished by government provision of pensions and social insurance. The right-wing has generally scorned these efforts, holding out the ideal that individual households might be able to provide the necessary care for their members via sufficient income and saving. The ideal of household self-sufficiency has been realized only by the lucky few, either, by fortunate circumstance or by much greater than average accumulation of monetary wealth. The monetary nature of providing care and self-sustenance has, then, in many instances required government to supplement private provision or, in some instances, to replace private provision with public provision of care. When faced with the reality, the right wing has tended to cling to the ideal of family autonomy and sufficient private means, rather than recognize the role of government in large-scale civilization in realizing ethical values associated with mutual and trans-generational aid.
The Paradoxical Effect of Taxation on Value
Another obvious way that societal ethics shapes monetary value is via differential taxation of various monetary streams and products, social “bads” and “goods.” When “sin” taxes are added to products that are considered socially or environmentally damaging, they reduce consumption of these products on the whole. Paradoxically, the high tax may tend to make people value individual units of the “bads” more, while at the same time reducing use of the “bad.” The effect of the taxation, then, on subjective “value” may, either, reduce or increase the attractiveness of the object or activity to which it is applied, even if the desired macroeconomic effect is achieved. If sin taxation is uneven or not shared across multiple jurisdictions, for instance in the case of alcohol, the avoidance behaviors against the higher tax rate can produce their own social “bads,” such as cross border forays to consume or purchase that may lead to accidental death or acute alcohol intoxication.
Tax incentives reverse the process and add value by subtracting taxes from an overall tax bill or from a particular good or service. Differential taxation increases the value of “tax-free” or lower tax alternatives to the good or activity that is taxed. In the United States, renewable energy has been incentivized largely by tax credits. Tax incentives also drive charitable giving in the US. Again, ethical values of what is “good,” as determined by the political process, have shaped tax policy for good or ill, depending on one’s perspective and analysis.
Lawmaking and Law Enforcement Shapes Monetary Value
Laws and regulations can be considered to be a subset of rule-based (deontological) ethics, so, in themselves, express something of the ethical ideals and strictures of the community. Beyond the obvious fact that the legal-regulatory functions of government employ people and are, therefore, an economic activity, the regulatory oversight function of government shapes perceptions of value within the private sector. The US Clean Air Act and Clean Water Acts and their enforcement, for instance, brought into being the business of designing and manufacturing pollution controls as well as various environmental remediation services. Similarly, regulatory oversight of businesses leads those businesses to place value upon compliance with laws, at least to the degree to which they can escape sanction.
Of course, regulations, especially if designed or enforced in a way that is cumbersome or contradicting the ethical intent behind the law, can also create a new or re-energized industry for evading or minimizing the impact of the law’s intent to save costs. The success or failure of a regulation might be measured by the proportion to which the regulated spend money to comply with the law, rather than how much money they spend in minimizing or escaping the law via legal or illegal means. There are segments of contemporary society where effort expended at circumventing laws is considered to be a mark of being a “real person” and following the law to the letter the sign of a lack of imagination or foolishness.
In Austerity, Lawmakers Commit to a False Ethical Object
The austerity campaign still popular in Washington and in other capitals despite disastrous economic results has developed a political following, in part, because it seems to promise to politicians the appearance of virtue. If they follow the directives of the leaders of the austerity campaign, they think, they will appear to be virtuous managers of a limited financial resource and, like potential borrowers to a private bank, attract favorable borrowing conditions and loans in the future. They think of themselves, like business owners and heads of household, to be “saving” money, a financial resource, for the future. In other words, lawmakers under the influence of austerity are choosing, as they may have in their private lives, a conception of “saving money” as the ethical object through which they are preserving resources for future generations.
For lawmakers at the national level with a fiat currency-issuing government, choosing saving money as the primary ethical object to which they should commit their efforts leads, in most circumstances, to an abandonment of economic and ethical duty. The fiat currency-issuing government cannot run out of its own currency; and the focus on limiting its supply leads to economic disasters wherever it has been tried. The primary ethical commitment of lawmakers should be to mobilize to an optimal degree real resources via the government’s financial technologies: their primary ethical concern should be the welfare and state of the people and the real resources that enable a flourishing of the civilization in which they govern. Choosing to conserve the virtual financial resource of money as the measure of success and failure of government is, both, economically naïve and a misplacement of ethical focus. The financial role of the national government, serving the public purpose and supplying liquidity with a counterbalancing eye on inflation and relative currency valuation, is entirely misrecognized by those who hold up the ideal of budget-balancing, a critical component of the austerity ideology.
In pursuing austerity, political leaders are following the trend of neoliberalism, which suggests that being a business founder and owner is the highest ethical good, compared to which the role of political leadership is considered to be a lesser calling. Business owners must, ultimately, be committed to money-making and money-saving as a condition of survival, though they must also be committed to other goals if they are to run a business that is ethical in the broader sense of the word. On the other hand, the fiat currency issuing government is the generator and supplier of the currency, as well as the monitor and remediator of the real world macro-economic and social-ecological conditions, that are created and/or overlooked by businesses in their pursuit of profit. The managers of that government cannot pretend that they are business managers without doing significant damage to their people and to the future.
This analysis also provide a critique to sources such as John Perkins, whose best alternative to his economic hit-man legacy, has been individual economic choices. Thanks
We are facing a series of enormous collective action problems. Individual economic choice alone cannot stand in for concerted action.
From a social philosophy viewpoint Neo-Liberalism is increasingly rejected because of its failure to recognize that Nature has devised two ways an individual can express self-interest in their well being; narrowly as an egotistical individual or collectively through a socially constructed moral conscience that promotes fairness but sanctions socially destructive selfishness. Both have their place in society. The trick is to find the most effective, democratic and frugal means to balance them.
Pingback: Ethical Values Shape Monetary Value | Fifth Estate
“Throughout the history of developed capitalist societies, poverty and vast social and economic inequality have been diminished by government provision of pensions and social insurance. The right-wing has generally scorned these efforts, holding out the ideal that individual households might be able to provide the necessary care for their members via sufficient income and saving.”
The problem here is that in our system of fractional reserve banking, whereby all money is created as debt, if everyone saves for their old age pension and medical emergencies, then this saved money is actually debt for someone else. How can everyone save in such circumstances ? It is in fact an impossibility, unless a different monetary system is adopted by having the government create money debt free as proposed by Dennis Kucinich in HR 2990
http://www.govtrack.us/congress/bills/112/hr2990/text
Frank, for the umptrillionth time, there is no such thing, never was such a thing, can be no such thing as debt-free money. Money is a form of debt (=credit). Saved, or any kind of money or credit is always a debt for someone else. But money does not have to be created by the bank lending process, where two debts, two credit/debt relationships are created, not one: the deposit in the borrowers account ( a relationship between the borrower and the bank, borrower’s credit, bank’s debt) & the loan (a DIFFERENT relationship between the borrower and the bank, borrower’s debt, bank’s credit). The bare fact of private debt at interest does not prevent savings for retirement. The interest paid to the banks does not disappear down a black hole. What many right wingers do is both exalt a chimerical ideal of individual savings and make it impossible in practice by fiscal austerity.
Basically everyone here agrees that current, excessive private debt levels are a Bad Thing. But that is not at all the same as saying we need to change the monetary system, get rid of modern banking. Sure it might be nice to have the gubmint print money instead of bonds, to have a ZIRP. But that is not the important thing. For, we already have a money-printing MMT system of the kind that Kucinich and other well-meaning but misguided reformers think we “should” have. The important thing is spending enough and in the right places; alleviating private debt levels by using public debt; ending disemployment (=unemployment) forever. Whether we should have risk-free interest rates of 0% or 1% – well who cares? – in the long run we are all dead, and such choices will not make much difference when we are alive! Don’t be hypnotized by the interest. Look at the principal!
If the US government creates money debt free by spending into the economy, how can it be government debt ?
The political pundits are aghast at the level of US government debt of $16 trillion, on which the taxpayers must pay interest. The solution is to allow the US government to create money debt free by spending into the economy. Thus the problem of government debt is solved.
This money can circulate and facilitate trade or alternatively loaned at interest by those who save it to those who wish to put it to good use. There is nothing wrong with private debt if the interest rate is limited to a manageable rate. If the rate goes too high it will precipitate bankruptcies and reduce the money supply accordingly.
What I strongly object to in our current system is not the lending of money per se, but the ability of banks to create money out of thin air. This in my view is one of the the functions of a sovereign government.
If the US government creates money debt free by spending into the economy, how can it be government debt?
If the US government printed greenbacks, creates money “debt-free” according to your intended meaning of the oxymoron “debt-free money” … these greenbacks would BE government debt. And they would be if there never had been any bonds or any gold standard or whatever. Why? Because they are a government promise of redeemability for debts going the other way – for buying stuff from the government at government prices – in particular, buying the remission of tax liabilities. That is all that (financial) “debt” has ever meant: a way of saying “I owe ya one”. Dollar bills are Uncle Sam saying “I owe ya one”. Uncle Sam “paying off” a bond by giving the recipient dollar bills is not really final settlement of the debt, but only a modification of a debt, which still exists.
Money is debt (credit) because it satisfies the primary dictionary meaning of “debt”. That is all there is to Mitchell-Innes’ great papers. That is all there is to MMT or circuitism or monetary economics: Consistently and systematically thinking of money as what it is – credit/debt – a relationship & not a thing – and not making the incessant category mistakes, nominal/real confusions, tendentious leaps of specious logic of most modern “economics” .
The problem is what you are thinking of as “not debt” – money spent into the economy by the US government using a printing press or a keyboard – is in fact debt according to the basic meaning of “debt” as understood by everyone, by small children, by humans for tens of millennia. (Which has nothing to do with interest.) Money is the most ordinary, most familiar, most universal debt. So familiar it is like explaining to fish they are swimming in water. It is so simple it repels the mind. People think there must be more to understanding money than what everyone understands about debts intuitively, and generally quite unconsciously. There isn’t.
You are all abstracting several layers above the root causes of the problem. Which are the social constructs we have developed for property ownership and the debt relationships we must enter into to acquire any property rights.
Most of us born into this world own virtually no property rights. It was not always this way……The erosion of common land rights, enclosure acts, intellectual property laws, arbitrary award of mining rights, privatisation etc have steadily stripped away the last vestiges of common ownership. The 1% practically own it all, firmly protected by Government security forces.
Our quest for housing security and food security leads us proles into desperate debtor/creditor relationships with bankers and the 1%er asset owners. We lever up and vainly strive to aquire sufficient ownership rights to secure a legacy for our families. Giving up so much of our excess productivity to service debt and feed the whims and desires of the 1%. Almost all of us failing miserably in our ultimate quest. Most of us leave the world with similar or fewer ownership rights we started with. It may just dawn on an enlightened few they were manipulated from cradle to grave.
Representations of the monetary system and banking system are nothing but smoke and mirrors to hide the reality of the master and serf relationship. 1% control everything, take what they want and let us have the bare minimum to stop us revolting. Just as it always has been.
Join a pirate party if anyone really want to start tackling the root causes.
You can argue all day long that money issued without incurring debt to any private entity is debt or not according to some arcane definition, but the fact remains that it does not bear interest. Additionally, the government issuance such a note only obliges the government to pay the bearer with another note or notes of the same denomination, nothing more. There is no other obligation. Thus in my definition of the word “debt” there is no real debt or any obligation.
This government issued money could be spent or saved by private persons and entities and then loaned at interest to other persons and entities, but money creation would not be the function of the banks. They would merely be middlemen, which is what 90% of the US population presently assumes.
If we changed the way money enters the economy using say HR 2990, we would be spared the charade currently going on in Congress over the debt ceiling and the interest payments associated with the $16 trillion US Treasury debt.
Additionally, the government issuance such a note only obliges the government to pay the bearer with another note or notes of the same denomination, nothing more. There is no other obligation.
Wrong. Flatly, factually wrong. If this statement were true, nobody would want to have “money”. That is NOT the only obligation. There IS “something more”. And it’s even printed on the bill!
This is all in the MM Primer & other places. Mitchell-Innes’ papers are still probably the best. Also, “interest” has nothing to do fundamentally with debt / obligation, which is a more fundamental concept.
Thus in my definition of the word “debt” there is no real debt or any obligation. Since the above statement is wrong – this shows we use the same definition. You just do not see how your own, the universal, definition of “debt” or “obligation” – applies. Because it is so obvious, that people cannot see it!
“The government issuance of such a note” obliges the government to accept that note back in payment to the government. As settlement of a debt from the holder to the government. Debts going the other way. This makes a dollar bill represent a debt from the government to the holder, in the sense a small child understands the word “debt”.
Calgacus,
Your sanctimoniousness on this issue is unwarranted. There are problems with the over-expansive definition of “debt” that MMTers use to characterize money and also what other people call “debt”, a bond between private parties where the debtor does not control the currency in which the debt is issued. Not all financial obligations can be characterized as “debt” or at least if they are, this induces confusion.
Whether or not it is MMT dogma or not to call money “debt”, this particular part of MMT needs to be revised. There is a confusion between an ontological argument (money originates historically as a means to keep track of debts) and a functional argument (money is used by the private sector and goverment to mobilize resources and to satisfy the terms of various debts).
Functionally, there is a difference between deficit spending without issuing bonds and with issuing bonds. Also to call the government-issued marker by which these debts and expenditures are denominated “debt” adds a layer of confusion that needs to be resolved. To lump this together under “debt” is terminological problem for MMT and not a reason for smug lectures.
Michael,
Thank you for the intervention. I feel that Calgacus is getting carried away with semantics rather than practical considerations. He is correct though, in saying that any debt free government issued money could be used to pay income tax to the government that issued it in the first place 😉 However, the only reason to have an income tax would be to control the rate of inflation, if necessary, to destroy the tax income and/or to redistribute wealth and income more equitably.
Since the ultra wealthy do not spend much of their income into the consumer economy, wealth and income concentration is what has caused the world economies to slow down. Instead, their excess funds are used to speculate in the stock, bond and commodity markets, which does the real economy little good.
Presumably there is an optimum of distribution of wealth and income, that could provide near full employment at a living wage, also with less dependence on government assistance.
The original function of money was to facilitate trade. But then the bankers discovered that they could create it out of thin air instead of minting coins. This new fiat money has become a commodity to be used as a store of wealth, where the ultra rich are adept at accumulating ever increasing quantities at the expense of the rest. This cannot be sustainable in the longer term.
Michael, needless to say, I disagree. I do not think “this particular part of MMT needs to be revised.” It is the central dogma. The sine qua non. Thinking it expresses a confusion is sorely, deeply confused. And everybody used to know it around 1950 – but not as forthrightly and clearly and philosophically as Mitchell-Innes said it, and so economics went to hell.
Your sanctimoniousness on this issue is unwarranted. There are problems with the over-expansive definition of “debt” that MMTers use to characterize money Academic MMTers – like Wray, Mitchell-Innes, Kelton etc use the general-purpose dictionary definition which encompasses, grounds both cases, which crucially covers both public and private debt on the same footing (see Mitchell-Innes). There are NO problems with this, the standard meaning, none that anybody here has ever stated. But problems from not using, not thinking in terms of “the overexpansive definition” are visible everywhere. They lead – and historically did lead from the glories of the New Economics of the 40s – in small steps back to the commodity theory of money and the nonsense of modern mainstream neoclassicalism.
and also what other people call “debt”, a bond between private parties where the debtor does not control the currency in which the debt is issued. That is not the primary meaning of “debt” or “obligation” or “liability”. That is NOT the definition “other people” fundamentally use when they use the word “debt” even for “a bond between private parties where the debtor does not control the currency in which the debt is issued”. Not even if that is the definition they think they are using. There ARE problems with this restricted “economics” or “finance” definition, which only makes sense in light of the fundamental dictionary meaning and definition.
Not all financial obligations can be characterized as “debt” or at least if they are, this induces confusion. No, they ALL can be and should ALWAYS be so characterized. NOT to do so induces confusion.
Functionally, there is a difference between deficit spending without issuing bonds and with issuing bonds. No, there isn’t. Absolutely not. Government spending is by definition an issuance of the government bond called “government currency”. That was the reason I replied to Frank. Frank stated that the “debt-free” Kucinich, “money-printing”, “greenbacks” proposal would be a Good Thing. I am saying that to all intents and purposes: We Have It Already. There is no “functional difference”. That is what Mosler, Wray, Fullwiler, Kelton, Forstater, Lerner, Minsky etc etc have been saying for years. Bonds are just a tool, a special kind of money that the government can use to set interest rates. Money/ currency is just a bond. That is all.
IMHO Frank and many others, including non- UMKC faculty posting at this site, misunderstand the definitions, the semantics of money. Enough to make a common, well-meaning, but misguided proposal that has the same practical relevance as thinking everything would be fine if we just started printing three-dollar bills. I also thought a bit the way I now oppose so tiresomely, made (and sometimes still make) similar errors until I read Mitchell-Innes, Gardiner, Ingham, Lerner and Wray more carefully.
My position is that if simple, ordinary four-letter words that everyone knows, that are human universals in all human societies, explain things correctly, precisely and clearly – and they do! – then use them – exclusively. The Big Words, the special purpose vocabulary for economics, the special academic redefinitions and nonexistent distinctions do nothing but confuse. They are the opposite of science; they are astrology. They don’t work as well as, they are less precise than “common sense”. The hard work is NOT using these Big Words, in translating their confusions into more ordinary language. And it is a true tragedy is when people think these defective special words, usages and nonexistent, meaningless distinctions are more natural and truer than the ordinary words and concepts they rest on and obscure.
Calgacus,
You’re trying to argue from authority, which is a logical fallacy as well as a sign of the tenuousness of this position you are defending.
How does my calling the cash in my pocket and the mortgage on my home both “debt” help me understand the difference between these two financial instruments? They are different monetary technologies…one is alienable and can be exchanged freely throughout the economy, the other is fixed to my identity and that of the creditor as well as to a particular asset unless it is laboriously sold by the creditor to some other creditor. Meanwhile I am perfectly free to exchange cash in my possession with whomever is selling dollar denominated goods or services. It has no attachment to me or to a particular object of trade. Calling the latter “debt” diminishes the attachment to people inherent in the former. If you say that the money is “really” debt, it still doesn’t explain why I can trade it so freely. Even if it is in its “essence” debt, according to this definition.
Debt is conventionally thought of as paying for consumption that has occurred in the past, which it in fact does (that is its main purpose). Meanwhile, cash pays for present consumption or can be stored up and saved and used to pay for future consumption. There is a radically different “use profile” for each of them.
Therefore, your assertions that MMT’s assertion that money is debt is a conventional use of the word is entirely off-base. This is why this argument crops up so often and will dog MMTers until they figure out a way to differentiate cash from debt.
By the way, MMT has a lot more to offer than it’s assertion that all money is “debt”. In fact it opens the door to thinking about the creative role of government in creating value and also creating monetary instruments with or without the notion that they are “debt” in the conventional sense of the word.
And he is also wrong about money being debt as payment for a tax due. Most of the money spent into circulation by the government would not be redeemable as a tax and thus would not represent a debt by the government to the citizenry or vice versa.
The whole idea would be to keep as much of the money as possible in circulation and not to redeem it.
I totally disagree with you Calgacus – “money” is simply a tool of exchange in the buying and selling of good and services. In reality, “money” has no other use. If there is nothing that can be bought it doesn’t matter how much “money” a person, or a government has, their survival will depend on what nature provides and probably, the mutual cooperation with other people. “Money” can be used as a debt just as it can be used as a credit, and it can be classed as either according to the dictionary definition of both. “Money” can take the form of any object that people consider useful, convenient, desirable, and generally acceptable.
On the other hand, there is another way to look at the meaning of “credit” in the financial context – A loan is merely a legal agreement, and in the case of advancing credit, it is simply the ‘monetisation’ of future effort. The borrower promises to repay the loan at a later date from the fruits emanating from the advance. In this respect, all credit is really public property because only people are capable of producing products and services that will create the ability to repay the advance. Thus, the creation of credit could and should be handled as a public service through a publicly owned bank, especially in respect to the public purpose of government and municipal responsibilities that is, or should be, the basis of their existence. A public bank could provide the required funding, at cost or low interest,or even interest free, and roll over the advance indefinitely, as has been successfully done in the past. Effectively, that would result in interest free “money” ultimately, being transferred into the society.
“There is no unified theory in our popular understanding of value: there are the market values of goods and then there are our “values” which we consider to be some of the most personal and even sacred aspects of ourselves. ”
__
WHAT? Are you kidding me? Market “value” is simply pricing based on willingness to pay. It’s about what “is.” Ethical “value” is about what “ought” or “ought not.” Can you get from A to B? Or, is the “ought” realm too subjective and slippery, irreducibly separate from the “is”? e.g., science “vs” religion
See Ken Wilber, “The Marriage of Sense and Soul”
“There is arguably no more critical and pressing topic than the relation of science and religion in the modern world. Science has given us the methods for discovering truth, while religion remains the single greatest force for generating meaning. Yet the two are seen as mutually exclusive, with wrenching consequences for humanity.”
Can you get from “is” to “ought”? Wilber says yes. I say yes. Not that it’s easy. If all we had to do was sign up for the checks we’d all be millionaires.
Economic “oughts” are choices a civilization makes that become the “is”. We can choose to acclaim and stipulate that which constitutes a “moral” economy.
Bobby,
The operative word is “popular” in that sentence. You may have overcome the divide between the market values of goods and your personal values in your own life or in your own philosophy. But I would submit that most people think of their values as being distinct from the prices they pay for goods and how they must value them in order to purchase them on a market. Therefore I stand by the sentence and the idea that most people hold their moral values in a different mental “bin” than their valuation of material goods and necessities. Those with substantial disposable income may be able to consume in a way that conforms to their personal values but this is the exception and not the rule…it also requires considerable personal effort and research on their part to “consume ethically” or as ethically as possible. So I think I am on pretty safe ground in asserting that a vast majority people have a multi-part theory of value, depending on which domain of their lives they are confronted with at any given moment.
No fundamental disagreement. Just that the “oughts” are achievable.
I don’t think religion gives a source for meaning at all. Certainly not to atheists like me. Most of the time all it does is act as cover for bigotry and supremacy and creates excuses for war.
But it says “In God We Trust” on all Federal Reserve Bank notes 😉
“Through ignorance, chosen or otherwise, politicians have a much greater chance of doing very significant social and economic damage and also of being manipulated by special interests. ” The chosen part is not only deliberate but great sums of money are spent on sheer propaganda. The nature of the propaganda such as what the Koch Bros believe in, may have a stated purpose but the actual intent, and sadly, this is so often realized, is to realign the serfs against those who earn $5k/yr (or 10 or 20) more in the public service. These public servants are painted as whoring to the public trough whilst the shenanigans of the Zombie-dead in the day-vulture banks that strangle as giant vampire squids receive no remark. Much as the race baiting led by southern aristocracy of yore, the current bigotry against the public servant, who often stands on duty to save the unwashed retch from his burning house and said retch yesterday cursed that public servant on a flame over the internet, this ranting serves to drive a wedge between folks who are actually in the same strata of society, economically speaking.
Ray,
I think the contemporary GOP is consciously doing as you say, setting one segment of working people against another segment with similar or slightly higher income. It is too bad that progressive Democrats have not been able to stand up for both groups and unite them in a political bloc against the wealthy manipulators and rabid ideologues of the right.
More generally, it seems to me that the GOP chooses ignorance and the Democrats are more in the category of just plain ignorant of macroeconomics as well as woefully inept in combatting Republican attacks against them and their constituents. Obama’s recent political “success” that some in the progressive commentariat are lauding is simply a function of Obama in some key policy areas “joining the other (GOP) side” and attacking the interests of Democratic constituents along with the Republicans (while he is personally attacked by the GOP).
“Those few who can understand the system will either be so interested in its profits, or so dependent on its favors, that there will be little opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear it burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”
Quotation from Meyer Amschel Rothschild.
He understood what he was doing and what chumps most of the people are.
Derryl Hermanutz has some interesting observations about money:
http://econintersect.com/wordpress/?p=17123
He maintains that the US now uses credit money, which is created by banks.
And then there is fiat money, which the US does not use.
“As an alternative to borrowing credit money that is created by its national banking system, the government could create its own fiat money and spend it into the economy without incurring any repayable “debt” in the process and without saddling taxpayers with escalating interest payments. As things stand today, taxpayers cannot even make payments on their private debts, let alone adding public debts to their unpayable burden. What the economy needs is additional income, not more debt.
Fiat money created by government and spent into the economy would be a net addition to the money supply that circulates in the economy, unless and until the government decided to tax some of that money back out of circulation and extinguish the money. Money that is “spent” into the economy by government becomes “income” to the people who receive the money. So fiat money offers a way to add positive money numbers into our monetary equation that is currently drowning in negative numbers.”
Hello! I really like this blog. Please tell me – from where do you have information for ths blog?
Pingback: Without an Effective Macroethics, Our Civilization is Doomed - New Economic Perspectives
Pingback: Politically Fashionable Carbon Gradualism vs. Reality | New Economic Perspectives
Pingback: Michael Hoexter: Politically Fashionable Carbon Gradualism vs. Reality « naked capitalism
Pingback: Behind the Crisis in American Governance: Delusions about the Economy Treated As a Matter of Differing Economic “Taste” – Pt. 2/2 | New Economic Perspectives