Ok, as anybody who’s a regular reader knows, I’m not an economist so I can’t possibly explain how the economy works. Of course, like most people on the internet these days, a lack of formal qualifications doesn’t stop me from having all sorts of opinions about all sorts of things based on something I read somewhere. But the sources of my opinions aren’t limited to dodgy internet sites. From time to time, I read books, as well as listening to what some guy down at the pub told me about what someone who really knows his stuff said.
So when it comes to economics, I’m just as qualified as the next bloke to put in my two cents worth. Of course, two cents won’t get you much these days. And not just because there isn’t a two-cent coin any more. No, it’s because economists have wasted a lot of time studying at universities, only to discover that nobody values their opinion unless they first charge a lot of money.
Having thus established why I’m just as qualified as the next bloke to talk about economics, I’d like to explain a few little things about money which people fail to grasp.
Let’s start with expression, “Money doesn’t grow on trees”. For many years we had paper money, and this led to a lot of confusion because people obviously believed that, as money was paper, it therefore was a paper product. Of course, the paper money wasn’t anything more than a symbol of the money and the actual money was… well, I think that this is where people grow confused. The actual money was just a concept.
Money is, was and always will be just a measurement tool.
I know that this is a bit hard to grasp, so let me quote Yanis Varoufakis, who you may remember as the Greek Treasurer who had to resign because he had a degree in Economics and his understanding of what was going on, was interfering with the negotiations when the world was concerned that Greece would default on its loan. In his book, “Talking To My Daughter About The Economy” he explains that in early societies they rarely used actual coinage. As he explains:
“For example, the accounting log would note, ‘Mr Nabuk has received grain valued at three metal coins,’ even though those metal coins had not been minted yet and might not be for many, many years. In a sense, this imagined form of money, used to facilitate real exchanges, was a virtual currency. So, when people tell you that today’s economy is very different to the economy of the past, citing the virtual payments made possible by digital technologies, tell them that is nothing new; that virtual money has existed ever since the economy was invented, following the agricultural revolution twelve thousand years ago and the creation of the first surplus.”
People look at physical things like coins and notes and gold bars and just presume that these are what constitutes money. But that’s a bit like looking at a tape measure and thinking that’s what constitutes a metre. And like a metre or a yard, money remains an abstract concept. Creating more tape measures won’t lead to their being any more land, of course. But it may lead to more land being divided up or shared, if the shortage of tape measures was holding up the process. This could be compared to pump priming the economy, but the analogy is already a little stretched and once one stretches a tape measure then its value is debatable.
In essence, money is merely a way of expressing debts. Physical money, unlike informal debts between individuals or notations in a ledger, is simply guaranteed by the sovereign or government of the day. And, it’s a simple way of settling the debt, because it’s guaranteed by the power structure of the time.
Of course, should the government be toppled, or issue too much money, then the money attached to that state loses its value. Physical coins, naturally, can be melted down for whatever and paper money can used to light fires, but while we have confidence in the government, the money is worth it’s face value, notwithstanding inflation or deflation, which merely means that the value of the money is fluctuating relative to the value of goods and services.
And, of course, there are all sorts of guarantees in this world. Take the National Energy Guarantee, for example. Just today, Josh Frydenberg told us that he was “confident” that this plan would lead to lower energy prices but that wasn’t part of the guarantee. What, in fact, they’re guaranteeing is that we’ll have coal providing our power for as long as they can possibly drag it out.
Then there was the Google guarantee. Or rather their slogan/motto/mission statement? Whatever it was, “Don’t Be Evil” had a nice ring to it even it was expressed in the negative. Why not, “Be Good”? Or did they just mess up the order and was it meant to read: “Don’t Believe”? (Ok, I added an extra “e”) When they first started, we were told that it would be the wisdom of the crowds which determined the top-ranked sites, but before long, it was the ads that were the first thing we saw. I guess that’s ok, because everybody has to earn a dollar. Of course, there’s no way anybody should expect them to pay tax on that dollar because that must be evil.
Whatever, the point is that there’s really nothing all that modern about Modern Money Theory. And if anybody out there believes that their money is worthless, they’re probably right and I’ll be more than happy to take it off them.