By J.D. ALT
This essay was first published at www.realprogressivesusa.com
There is a lot more riding on our understanding of modern fiat money than we typically consider or discuss. Human society is now confronted with three epoch-defining challenges and, in each case, the understanding and strategic use of modern fiat money holds out the ONLY real possibility for constructively engaging the them.
The challenges are:
- Climate change & ecological collapse
- Assault on Democracy
- Mass migration
In each case, the challenges are, first, aggravated, amplified, and intertwined by our ignorant, unimaginative clinging to the old rules and norms of “commodity” money. These old rules and norms tell us, basically, that money is (a) a finite resource that people must compete to have a share of; and (b) that a sovereign democracy must collect some portion of its citizens’ “finite” money-share (as taxes) for democracy to have money to spend for its collective goals and needs.
It is precisely because sovereign democracies cannot collect enough taxes that it appears climate change and ecological collapse cannot be addressed—the “cost” is simply too high for tax-dollars to cover. Worse, we are in a Catch-22 which demands that to increase tax-dollars collected, it is necessary to expand the business development that is the root cause of the climate change and ecological collapse we seek to correct.
It is precisely because progressive democracy continuously threatens to collect MORE taxes than the citizens are willing to pay (in order, for example, to ameliorate climate change and restore ecological habitats)—it is because of this that democracy, itself, must be challenged, threatened, held in check, to protect the pocketbooks of a wealthy class that loathes and fears, above all else, the taxation of their wealth.
It is the complex interaction of failing democracies, collapsing ecosystems, and the corrupt, profiteering, manipulation of the old “commodity” money-rules and norms, that drives failed states and mass migration—which, in turn, are rapidly giving rise to national bigotries and the marginalization of hundreds of millions of men, women, and children forced to flee from unlivable conditions while being provided no place to go.
In the case of each of these challenges, a constructive confrontation can only begin with a sweeping acknowledgement that the old “commodity” money-rules and norms are no longer applicable to our modern social economy—nor have they been for over half a century. Modern fiat money, we now understand, moves in a direction opposite the old mercantilist “commodity” money: instead of moving from the citizens to the democratic state—in the form of taxes—it moves from the democratic state to the citizens (and subsequently to the “mercantiles”) in the form of sovereign spending. And it is precisely this democratic sovereign spending, well considered and strategically directed, that can indeed:
- Begin to address climate change and ecological collapse—by paying citizens to design and build new zero-carbon infrastructures, technologies and habitat restorations;
- Quell the assault on Democracy, by eliminating the perception that democracy’s spending is to be paid for with citizen’s tax-dollars—and transforming the strategic understanding of what taxes, therefore, can and should be made to accomplish;
- Ameliorate mass-migration on two fronts: (a) by repairing the failed states and rescuing the collapsing local economies that are producing the migrations; (2) integrating what necessary migrants there are into the local social economies of their adopted locales—by paying them living wages to provide useful services to their local and regional communities, wherever they may be.
We can make excuses that it is simply the greed of profit-making global corporations which holds back efforts to address global warming–(largely true!); that it is profit-making business interest and the wealthy who want Democracy in their back pockets so they can control what it taxes and spends—(definitely true!); that it is authoritarian populism (whatever that might be) which creates failed states and mass-migration (sadly, a true statement as well). But the real, underlying reason these threats are now growing large and unmanageable is because we find ourselves unwilling, or afraid, to openly discuss—in the mainstream political conversation—the simple topic of what modern fiat money is, how it works, and what it can accomplish. So long as progressive leaders are allowed to back-pedal on this topic—to try, somehow, to go forward based on the old economics of “commodity” money—little progress can ever be made to address the Big Three challenges that are growing more formidable every day.
While I agree completely with your stance here, I see little likelihood that the mainstream narrative will alter in an MMT direction any time real soon. Unfortunately.
John, this is the most powerful statement I have ever read on the subject.
“The history of all hitherto existing society is the history of class struggles. ” (Marx & Engels 1848 Manifesto of the Communist Party)
“Landholders ought to have a share in the government, to support these invaluable interests, and to balance and check the other. They ought to be so constituted as to protect the minority of the opulent against the majority.” (James Madison 1787 debating the form of the US Constitution)
I would add militarism and the threat of nuclear inhalation to your list.
Even someone as buffoonish as Donald Trump is on record saying the US government creates the Us dollar (unfortunately I cannot find the reference).
Surely most that read here must understand that many (most?) elites know “the simple topic of what modern fiat money is, how it works, and what it can accomplish”, as they put there Hayek and Ayn Rand aside for the day they rush to the nanny state for a bailout when the system of capitalism collapses, let alone the constant pocketing of fiat money through militarism and other handouts.
“Socialism or Barbarism” seems even more true today.
Some quotes just never get old.
Correction – nuclear annihilation (not inhalation)
While I am correcting I would also suggest adding the undemocratic (or lack of democratic) use, control and development of technologies (e.g., AI, nano tech, GMO, lack of investment in new vaccines and antibiotics…) as potential future (and maybe not so future) existential threats to the list.
You got that exactly right JD so, why can’t it happen? Are the stakes too high? The rationale and logic are there, but it seems there is no one at, or near, the top of the heap, capable of understanding the solution. As that is the case, then it raises another problem. How will we find the intelligence needed to fulfil the requirement of “well considered and strategically directed” spending? To the current mindset, the concept of fiat money is more likely seen as the goose who laid the golden egg. It would be an open invitation for manipulation and plunder. This may be the problem that needs to be addressed first up – controlling the way a true and proper fiat currency system is introduced and used.
I don’t think this goes far enough.
What we are developing is a new asset class that is more sustainable and more resourceful than those that currently exist.
The asset class will invest in the production of results that address your three points.
MMT just doesn’t seem to be that asset class simply because it’s still money as we know it.
This recently discovered inexhaustible source of wealth capable of showering the human race with all the imaginable fruits of the progressive mind needs a new name; a moniker which strikes fear into the hearts of the most staunch capitalist. I propose we call it the Progressive “Fundamentally Authentic Gratuity” note.
“Excuse me, sir. Could I interest you in purchasing a delicious Coca-Cola?”
“Why, yes, good-man. How much will the beverage cost?”
“Cost, you say? Dear sir, our kindly government has already provided us with an infinite new resource which they pump out into our economy by the truck load each moment of each day, an altogether new asset-class which defies the most basic laws of reason, logic, and economics! To fund the purchase of this soft drink you will merely have to procure for me one single Progressive FAG.”
“Just one Progressive FAG!? My goodness, what a bargain!”
Uninhibited sovereign spending funded either through money creation (the “printing press”) or foreign investment (since you have already ruled out taxation, the 3rd and only remaining option for governments to generate revenue) has been tried by over 50 countries in the past century and failed catastrophically in each case (See: http://www.businessinsider.com/worst-hyperinflation-episodes-in-history-2014-4#hungary-august-1945-july-1946-1).
Learn some history, read some economics books, engage in a real rational thought. Wealth is generated through productive activity (manufacture, agriculture, labor) not through “spending money”. Money itself, whether gold, silver, sheafs of wheat, cattle, or fiat paper, is just a medium of exchange used to acquire a share of finite resources; a temporary store of value which endows the owner with the ability to claim the fruits of someone else’s productive labor based on the supply and demand for that resource at a later time. Printing, spending, creating, loaning, or borrowing money does not impact the supply of goods and services available at any point in time; the only affect it can have is to change the price of those goods and services in the case of “printing” the money out of nothing.
Frankly, you idiots flatter yourselves in believing you have discovered something here. Reality has not changed, economics has not change, the nature of money has not changed; you can only fool yourselves that they have.
Good list. Anyone who doesn’t recognize that private for profit finance is an impossibly problematic business model is either therein invested, blinded by its currently enforced paradigm of Debt Only, ethically challenged and/or just plain dumb. A parasite eventually kills the host.
We don’t need banks we need A national publicly administered bank that issues new fiat money at 0% and that distributes monies for the policies of the new paradigm of Monetary Gifting. If you do not think paradigmatically…you never perceive the deepest problem (the old paradigm) and you always think in terms of palliatives instead of actual solutions.
Sing me up.
But why stop with those three? There are any number of other big issues, say like health care and education and bombs, not to mention our sosiopath president and his friends in and out of government.
I also think the financing issue is a lot more difficult than waving the fiat currency around. We know we don’t need taxes to spend but the general public and more especially the elites will use those old money rules you speak about to beat our heads in. It is all too expensive they will say, just another crazy idea from the liberal spenders.
We don’t even have a united political party to make it happen, let alone a majority in government. That might not be a bad place to start.
There are two kinds of money but few economists seem to recognize it. There is the currency in printed bank-notes and coins and also in electronic money when it is issued on a permanent basis. The other kind of money is credit which is issued on a temporary basis, which gets returned even as more is being issued. So this second form may remain almost constant in quantity (not allowing for its sensitivity to the interest rate, so that its total amount changes over a long time), but it is continually being returned and replaced. As I write a post-dated check, I am creating some of it.
I don’t disagree that a failure to understand and use sovereign currency for public benefit lies at the root of many of our problems. Nor do I argue with MMT and do promote its use in macroeconomic analysis. But to create fiscal policy for the common good assumes viable states that can issue a currency and demand its use. Yet we see the states are disintegrating into oligarchies, with or without the facade of democracy. Among those members of societies that are shut out of participation in economic decision making, e.g, indigenous peoples in South America, the only path to any relief is found in democratic, cooperative efforts that circumvent state institutions in all aspects. In the US, the federal government is now mostly a barrier to economic inclusion and the common good, and increasingly the mass of the people are ignored in the rush to enrich the already wealthy by environmental looting and regulatory abandonment. Eventually people will have to develop their own institutions and economic solutions that circumvent barriers to their survival, much less a reasonably pleasant future. When that comes to pass on a wide scale, states will only be maintained by dint of military power. If economics as a profession is to have any influence on these outcomes, I think there is little time left for it to happen, maybe a couple of decades if we’re lucky. How to break through the institutional (media, regulatory capture, disinformation campaigns) that leave us paralyzed while we burn is a pressing problem in itself.