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.