What is money? A rabid free marketeer puts his foot in lots of notes

Fear the drunken sailors and their bottomless wallets


Yup, more footnotes

So, we'll skip over all that intervening stuff about money being gold, or cowrie shells or even the stones of Yap. Well, not entirely: there are those who want money to be something, something real, not just that ledger book of debts.

Gold bugs are the most virulent strain of this thought: if only money was really the amount of gold in the world (or, in that modern incarnation, only the amount of Bitcoins that will ever be created) then everything would be better.

Except if money is the debt ledger, and larger economies have more such debts, richer people have more both debits and credits in the book, then why do we want to limit the amount of money? As I've said before around here if a restaurant is to serve 150 covers instead of 50 then it needs more plates and cutlery. A richer society needs to have more money.

The one truly interesting thought about money that's roaming the landscape at the moment is Modern Monetary Theory. And this is the one that scares the shit out of me. Not because it's wrong but because of the implications of it being correct. And it is, in some aspects, actually correct, too.

The point being made is that with this modern fiat money, it is governments that create cash. That's what the fiat means of course. And if that's true then of course a government can never run out of money. It can, and should, just make as much as it needs and then go spend it on whatever it wants.

All of which is entirely true and in the older economics is called the monetisation of fiscal policy. Instead of having to go through that dreary business of working out how much people can be taxed before they come to hang the taxers, just make new money and buy everyone lovely things.

This is at the heart of the Peoples' Quantitative Easing Jeremy Corbyn and Richard Murphy mantra, of which, macroeconmics researcher and global financial system analyst Ann Pettifor is also a prominent exponent. In fact, she's just been announced as one of Corbyn's advisory team.

And the difficulty with this is that they are right. Government can do this: and governments have done it. And when they have opted for that policy, it has – almost without exception – got horribly out of control.

As Weimar Germany, Hungary post-World War Two, Venezuela and Zimbabwe in our own times found out (Zimbabwe only stopped doing this when the last run of hundred trillion dollar banknotes weren't worth enough to buy the ink for the next run of banknotes) and hyperinflation leapt up and smacked them in the face.

There has to be a limitation on this process: and Modern Monetary Theory says that that's simple. That's where tax comes in: sure, government just prints the money it needs to buy what it wants but of course this is monetary stimulation of the economy.


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