Mises University 2021

Occam's Banana said:
Modern Monetary Theory | Lucas M. Engelhardt
Odysee: https://odysee.com/@mises:1/modern-monetary-theory-lucas-m.:8
YouTube: https://www.youtube.com/watch?v=WB54zgQaI2o
Click to expand...


Engelhardt is a roundabout speaker. A forthright statement of his point: debt is not money, nor can it be money apart from the intervention of the State.

Why is debt not money? To start with, absolutely no one would have confused debt and money before about 150 years ago. And even after Marxist academics began corrupting the scholarly understanding of money and economics, any John Q. Public on the street would have immediately known the difference between debt and money until at least 50 years ago when the dollar's last tie to gold was cut by Nixon in 1971. But perhaps pre-Marxist people were just confused about money and we needed modern Marxism to straighten us out...

The Austrian account of the emergence of money from barter[1] is not necessarily a historical argument. Engelhardt briefly mentions this account of money but says nothing further about it. But it's important to emphasize that the emergence of money from barter is a notional argument, meaning, it's an argument that stands even if it is a historical fiction. "Suppose there was a time when there was no money and humans solely engaged in barter... in that case, this is how money (must have) eventually emerged even from that condition." So even if there has never been a time that humans did not use something as money, the Austrian account of the emergence of money from barter is a sound argument. In that case, it's a reductio ad absurdum, because even if you start with a society without a money commodity, very quickly, you have a society that is using a money commodity.

Debt lacks almost all of the properties that we now recognize are key to the emergence of a money commodity from barter. Debt is not fungible because every debtor is unique. Debt is not divisible because each debt is an indivisible "legal claim" against the debtor. Debt is not durable because debtors can die, become disabled or destitute or go into default. The liquidity of debt is subject to extreme fluctuations based on legal and political uncertainty because the collection of debt instruments is logically dependent on their enforceability in court -- if your country is taken over by socialists and these socialists declare "all debts are hereby dissolved", then all those IOUs in your vault have become completely worthless overnight.

So the idea that debt is money or even could be money (apart from the say-so of the State) is ludicrous. If anything, debt is an illusion. Combined with the multiplication of corporate entities that can hold debt, debt can be manufactured without limit. Debt-as-money creates a kind of "fully privatized central bank" (operated by the commercial banking system) and this results in unbounded inflation as anyone who can create a corporation and take on debt in the name of that corporation is thereby able to print their own money[2].

Money is the most saleable good, and it is used as the primary medium of exchange. You can invent creative, postmodern definitions of money to your heart's content, but these definitions cannot change what money is, any more than creative, postmodern definitions of gravity can change what gravity is. You can leap over the cliff with firm faith that your definition of gravity is true and the "outdated, obsolete" definition of gravity is false, but the outcome will be the same, no matter what thoughts and feelings are passing through your mind as you fall to your death.

---

[1] - Short version: Imagine a pre-money society in which people exclusively barter goods they have for goods they need. One fur skin for two baskets of fish. And so on. Among the goods that are traded, some are more easily traded than others (less waiting time is required in order to find someone who wants to trade for that good). These goods are called liquid goods. As a small set of liquid goods emerges, people will begin to recognize that some of those goods have an additional use-value because of their high liquidity. So you will have a "convergence" on demand for one or a few such goods, and these goods will become money. The properties of these goods are not completely arbitrary but are quite logically connected to their usefulness as a monetary good (durability, fungibility, scarcity, and so on).

[2] - Our current monetary system still has the Fed at the center of this scheme so debt cannot be created beyond what the Fed allows. However, creating lots of corporate debt is basically how you open a no-limit credit card with the Fed. And now that we have QE-forever, they are printing up unlimited debt/"cash" for anyone willing to open a line of credit with them...
 
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