“You can never be too rich or too thin” (or something like that) said, uh, somebody or other . . . maybe — it’s attributed to a bunch of people few members of the public today ever heard of. Leaving aside the “too thin” bit as a bit beyond our competence, we’ll focus on whether you can be “too rich.” Quick answer: yes, you can be too rich, especially if no one else has any money . . . money here defined as “all things transferred in commerce.” (That’s in Black’s Law Dictionary, at least the edition we have.)
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| Jean-Baptiste Say |
To explain, if “money” consists of “all things transferred in commerce,” regardless of its character or lack thereof as “currency” (“current money”), and only one person or at least a very few have most or all of it, then everyone else has little or none of it. This is because production equals money, and money should (in theory) equal production. That’s the essence of what became known as Say’s Law of Markets, although Jean-Baptiste Say didn’t invent it. He just expressed it better than others had up until his time. As Say said in Chapter I of his Letters to Mister Malthus (1821), when refuting the High Priest of Scarcity,
All those who, since Adam Smith, have turned their attention to Political Economy, agree that in reality we do not buy articles of consumption with money, the circulating medium with which we pay for them. We must in the first instance have bought this money itself by the sale of our produce. To a proprietor of a mine, the silver money is a produce with which he buys what he has occasion for. To all those through whose hands this silver afterwards passes, it is only the price of the produce which they themselves have raised by means of their property in land, their capitals, or their industry. In selling them they in the first place exchange them for money, and afterwards they exchange the money for articles of consumption. It is therefore really and absolutely with their produce that they make their purchases: therefore it is impossible for them to purchase any articles whatever, to a greater amount than those they have produced, either by themselves or through the means of their capital or their land.
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| Louis O. Kelso |
That means to the extent one has money, he or she can engage in economic activity, and cannot do so if he or she lacks money. Begging the question, however, it really doesn’t get down to the nitty gritty of what money is, in essence, although it gets pretty close, and people should be able to infer the true meaning of money from Say’s Law.
Perhaps Louis Kelso said it best, however, when he gave his definition of money — when put in the context of Say’s Law, with which Kelso seems to have assumed his readers were already familiar. These days, don’t be too sure — defining anything (or even in some instances saying anything) doesn’t do any good if the listener or reader doesn’t have the background or basic information necessary to understand it. For example, defining a donkey as “a domesticated equine descended from the African wild ass, equus africanus, and may be classified as a subspecies thereof” doesn’t tell you a thing if you don’t already know what an “equine” is. Or an ass. The kind you ride, not sit around on.
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| Somebody mention my name? |
Anyway, keeping in mind Say’s Law of Markets and the definition (one of them, anyway) in Black’s Law Dictionary, Kelso gave this definition of money:
Money is not a part of the visible sector of the economy; people do not consume money. Money is not a physical factor of production, but rather a yardstick for measuring economic input, economic outtake and the relative values of the real goods and services of the economic world. Money provides a method of measuring obligations, rights, powers and privileges. It provides a means whereby certain individuals can accumulate claims against others, or against the economy as a whole, or against many economies. It is a system of symbols that many economists substitute for the visible sector and its productive enterprises, goods and services, thereby losing sight of the fact that a monetary system is a part only of the invisible sector of the economy, and that its adequacy can only be measured by its effect upon the visible sector. (Louis O. Kelso and Patricia Hetter, Two-Factor Theory: The Economics of Reality, New York: Random House, 1967, 54.)
So, according to Say, Kelso, and a definition in a law dictionary, if there is production, there should never be an instance of running out of money. Commercial banks, in fact, were invented to turn the value of existing production or the present value of future production into currency or currency substitutes to be used as money in commerce more easily than dealing in commodities directly or other forms of barter.
Thus, if someone can produce, then there is actual or potential production which can be turned into money and used to engage in economic activity. There should never be any reason why a productive individual, group, or economy should lack for money of any kind. That is why this news story is so baffling.
At first glance, it seems like a reasonable fear — how can banks lend money they don’t have? Yet once we understand what money really is, we realize that if a borrower brings something of value to a commercial bank, the commercial bank has the power to turn anything of value into currency or a currency substitute, and that — not pre-existing currency or currency substitutes — is what a commercial bank lends and for which it charges a fee.
In other words — as Kelso understood, although he didn’t articulate it clearly — a commercial bank was invented to turn things of value into money to facilitate commerce. You might as well talk about running out of inches to measure length and facilitate building a house or sewing clothes as talk about running out of money to facilitate commerce, form capital, or carry out exchanges and store value. It is a “meaningless noise” to talk about running out of money once you grasp Kelso’s insights.
That is why the Economic Democracy Act embodies monetary reforms based on Kelso’s understanding of money, not what all the so-called “experts” tell us is the case. Frankly, the whole problem of money and credit is a non-issue once you approach it from the perspective of the Just Third Way.
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