Having allowed our readers to refresh themselves with a
brief hiatus before completing this blog series, we return to our discourse on
the importance of standards, especially when dealing with money and
credit. Possibly to oversimplify, there
may be no greater single problem today in the economic and financial sectors
than the fact that the concept of standard has ceased to have any meaning.
We can probably attribute this almost solely to the
influence of John Maynard Keynes and his monetary theories, which are based on
the “chartalism” of Georg Frierich Knapp (1842-1926), and which developed into
“Modern Monetary Theory,” or “MMT.”
Knapp’s theories were developed in the 1880s, and presented in English
in 1924 with the publication of The State
Theory of Money simultaneously in London and New York, an abridgement of Staatliche
Theorie des Geldes, München
u. Leipzig: Dunker & Humblot, GmbH, 1905.
(Yes, “Humblot” is correct. We
double-checked that one.)
The relatively late
appearance in English of Knapp’s work did not affect his influence on the
development of MMT. Keynes was fluent in
German, as were other chartalists and neo-chartalists, such as Alfred
Mitchell-Innes (vide “The Credit
Theory of Money,” The Banking Law Journal,
May 1913, 377-408).
Essentially, chartalism is the theory that the whole of the money supply consists of bills of
credit. In constitutional law, a bill of
credit is a security issued by a government upon its faith and credit, designed
to circulate in the community as money, and redeemable at a future day. If more money is needed, the government
issues more debt. If there is too much
money, the government levies taxes.
Chartalism effectively grants the government ownership of everything in
the economy.
The standard of value in chartalism, and thus in MMT, is
understood to be flexible, subject to adjustment as expedience or need dictate. Even money is subject to redefinition,
depending on what the State finds best suits its needs. The sacredness of contract (liberty, freedom
of association), the foundation of an individually and socially just society,
is dismissed.
In short, in MMT the whole idea of “standard” is abolished
or is construed as a meaningless noise.
As Keynes declared,
“It is
a peculiar characteristic of money contracts that it is the State or Community not only which enforces delivery,
but also which decides what it is that must be delivered as a lawful or
customary discharge of a contract which has been concluded in terms of the
money-of-account. The State, therefore, comes in first of
all as the authority of law which enforces the payment of the thing which
corresponds to the name or description in the contract. But it comes in doubly when, in addition, it
claims the right to determine and declare what
thing corresponds to the name, and to vary its declaration from time to
time — when, that is to say, it claims the right to re-edit the
dictionary. This right is claimed by all
modern States and has been so claimed for some four thousand years at least. It
is when this stage in the evolution of money has been reached that Knapp’s Chartalism — the
doctrine that money is peculiarly a creation of the State — is fully realized.” (John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and
Company, 1930, 4.)
In other words, whatever the State says, goes. The State has become the Hobbesian “Mortall
God” that can command reality itself to change.
The moral relativism of modern society is matched by economic and
financial relativism so that nobody knows what is right or wrong, or what
anything is worth in any realistic terms.
This maintains society in a condition of permanent chaos, which requires
increasing State control to keep things running even at a marginal level — as
long as people have faith in the government.
Our immediate subject, however, is the effect that
abolishing even the idea of a standard as a standard has on economic life: how
people meet their material wants and needs.
It’s bad. It’s really bad.
First, of course, giving total power over money and credit
to the State is a straight path to totalitarianism, even if the State
maintained strict standards. Giving the
State control over the means by which people carry out economic life means that
the State controls economic life absolutely, no ifs, ands, or buts. This is socialism, pure and simple.
Yes, this sounds like a Biblical Fundamentalist’s nightmare
come true, the Reign of the Beast from the Apocalypse:
“13:16.
And he shall make all, both little and great, rich and poor, freemen and
bondmen, to have a character in their right hand or on their foreheads: 13:17. And that no man might buy or sell, but
he that hath the character, or the name of the beast, or the number of his
name.”
That does not, however, make it any less true, or less
serious. That is especially the case
when the State does not maintain strict standards — or any standards at all.
When no one knows from one day to the next what the currency
is worth, or even if it will be worth anything at all, most people end up on
the short end of the stick. You may
agree to a specific wage, but when it comes time to spend the money, it could
be worth half as much as when you earned it because the government issued more
debt, inflating the currency and raising the price level. Or you lent money, and were paid back in
cheaper currency.
The only people who are better off under such a chaotic
state of affairs are those few with productive wealth, speculators, the
government, and debtors whose debts are paid either by the cheapening of the
currency, or by redistribution.
There is, frankly, no other way to describe this than
theft. If you have a loaf of bread, and
I can give to my good buddy a piece of paper that forces you to hand over that
bread to him, and then you present me with the piece of paper demanding the
value of the bread, and I tell you to go fly a kite, how is that not me
stealing that loaf of bread from you?
The only hope for survival in such an economy or under such
a government is to restore standards — and that is the least likely thing to
happen, as we will see tomorrow.