Another good set of comments. Either my readers are getting a heck of a lot smarter, or I’m getting better at explaining MMT. As usual, let me group responses by topic.

  1. Why is gold accepted? Well, it is bright, it is shiny, and it is the “noble element” that never changes—easy to clean-up, can be smashed into impossibly thin sheets, and looks good in ears and on fingers and in teeth (at least to some people). It also benefits from an almost mystical quality—with several thousand years at the top of the totem pole of desirable prestige goods. Oh, and yes, many countries pegged their currencies to gold in not-so-recent years. Finally, its value is maintained by fairly robust manufacturing demand as well as propensity of governments to lock most of it up behind bars. Speculators bet that governments will not release the imprisoned gold, which would instantly wipe all them out. To hedge their bets, they help to put goldbugs in government. So far as I can tell, there are no rival plausible explanations for the fascination with gold.
  2. MMT explodes heads. Probably true. Not a criticism, however. Darwin exploded heads. Newton exploded heads. Why shouldn’t the occasional economist? One of my PhD students put it much better. On the last day of class he brought in a pair of those distorting glasses for each student (and professor!) and demanded each put them on. He said that this is what MMT had done for him—his whole world view had been shown to be distorted and wrong. Then we all took the glasses off, and could see the world as it exists. There you go. Downright Kuhnian.
  3. Is government benevolent, having the interests of the population in mind? Does that belief stand behind MMT? Emphatically “NO”. Have you been paying attention to the Obama administration? Have you ever heard of a maniac named Hitler? Do you really think that when Michelle Bachmann is elected to replace Obama she’s suddenly going to turn all nice and democratic? (No, I am not equating the three politicians—two of the three are irredeemably evil. The jury is still out on the third.) MMT “works” no matter how depraved or democratic the government is. That is an entirely separate question. MMT is for Austrians, too. So long as they have not been abducted and probed by aliens. Then all bets are off.
  4. Do governments have to “finance” their deficits. Well, that depends on what we mean by “finance”. Sorry, don’t mean to sound Clintonian here. Let us save that for next week.
  5. Is all money debt? YES, all money “things” are debt. Can issue of bonds affect interest rates? No, not necessarily. Depends on central bank policy—if central bank does not want interest rates to go up, it can always prevent that. Again, a topic for detailed treatment later. Is a “debt cloud constraint” good because it constrains government spending? Well, as Paul Samuelson says, it can work like that “old time religion”—it is a lie, but he claims lies are sometimes useful. I’m a professor. I cannot lie. I will not lie to you. I will tell you the truth and you can decide whether you prefer the lies. I do think government spending should be constrained. But I believe we can tell people the truth and let them choose to constrain government. I’m in a distinct minority on this issue, however. Almost all economists—including Beltway “progressives”–prefer to lie to you. You can choose what you prefer. There are plenty of beltway progressive “think tanks” that spout the lies.
  6. Some claim fiat money is accepted because it “stores value”. What value is there in a piece of paper that says “I promise to pay you 5 pounds”? Zero. Infinite regress argument—it has value only if some poor dupe thinks it does. Or, some claim fiat money is accepted because it is backed by oil. Really? How gullible can you be? Take a dollar bill down to Treasury and demand conversion to oil. Go ahead, we will wait for a report on Geithner’s response. Really. Go ahead. Report back next week.
  7. Can we drop the FICA tax and still have a viable Social Security program. Yes. Should we? Emphatic yes. Go here. There are also many posts here at NEP that make a similar argument. Tell your “progressive” friends: Don’t hang my Social Security on the hated, job killing, regressive payroll tax! My sovereign government can always make all promised payments as they come due. Period. Then hold your dim-witted Congress-people to that promise.


  1. You missed the main point on the preference of some for gold over 'fiat'. "They can't print it". It is the fear on inflation that repels some from fiat and towards gold. I'm not claiming that inflation is an issue, but if we're trying to understand why its mystique remains, that's the big Kahuna.

  2. So, MMT holds or concludes that there is no fiscal constraint on a monetarily sovereign government (it can always pay any bill). This leaves inflation, deflation, unemploment and (any more?) as the relevant considerations for government policy.Hopefully this discussion will reach a point where MMT is framing the possible tradeoffs between the real constraints on the economy.

  3. "So, MMT holds or concludes that there is no fiscal constraint on a monetarily sovereign government (it can always pay any bill). This leaves inflation, deflation, unemploment and (any more?) as the relevant considerations for government policy.This makes clear that such (knowledgeable) government can employ the available real resources to achieve any kind of inflation, deflation, unemployment, income and benefits distribution its voters (the private sector) desire.rvm

  4. Anon 1: Gold as inflation hedge.1. Boy oh boy I hope you did not buy gold at our previous inflation peak–1980–in which case you'd still be in negative return territory.2. Even if you were right (which you are not–gold is a terrible inflation hedge) it still is an infinite regress, dupe the stupid, argument. Gold like all other commidities would tend to have a declining price profile over time. Reason? Improved extraction techniques. If it weren't for goldbug gov't willingness to lock the gold up behind bars in places like Fort Knox, all things equal, its price would fall over time.3. It is quite clear to any sentient creature that goldbugs are using marketing to drive up gold prices so they can dupe the stupid. I hope you are not one of them. It is a temporary spike. It will collapse. And then we return to all the reasons I mentioned for the demand for gold: use in manufacturing, nice shiny metal to put in teeth, etc, and goldbug hoards. It is just a commodity, and when prices are high, gold miners come out of the closets.

  5. It is really getting better with each post. Some 40 more to go. Good luck!

  6. "Is all money debt? YES, all money “things” are debt."I disagree here, but there may be a need for more than one definition of debt. I consider when I get a mortgage for that to be debt. I don't consider it debt if I put currency in a checking account and get a demand deposit that I expect to be one-to-one swapable. From what I can tell, you believe both are debt.

  7. The real issue being "danced around" is that if an economy needs more medium of exchange how should that happen.

  8. My question before about why anyone accepts gold was not meant to be about the advantages of gold as a medium of exchange. I was trying to ask the broader question of what gives anything at all value.If someone offered to pay me in gold, I might accept it provided that I was reasonable sure that I could pass it along to someone else conveniently. My point is that the objection that is sometimes heard from people who want their money "backed up by something" doesn't make sense, since the "something" that would back it up is only valuable because people say it is.

  9. @ BaldApeBeyond the things Wray listed there only seems to be a veil of mystique.It's woven into the very fabric of our culture — the 'golden gates of heaven'; the fact that the word 'gold' comes from the Latin 'aurum' which means 'shining dawn'… I could go on, but gold is clearly culturally tied up with associations of majesty.This also seems to have occurred in many other cultures. And I guess it is a bit weird. But surely no less weird than the high value we place on diamonds, rubies and sapphires. They're shiny, they're rare and human beings — despite having produced great things — are still, at the end of the day, pretty stupid.