Last week we finished off our look at what was meant in Modern Monetary Theory (MMT) by the claim that money is a creature of law rather than a commodity. We concluded that “creature of law” in MMT did not mean consistent with the natural law and the legal definition of money as anything that can be accepted in settlement of a debt. Rather, it meant that money is a special creation by the government . . . which pretty much negates the real definition of money.
|John Maynard Keynes Funny Money|
As for money not being a commodity in MMT, that is evidently just word games. Any time any authority tries to decide how much money and credit there should be, money and credit (the same thing, actually) is being treated as a commodity. Money is a symbol, a means of exchanging what people produce, and is utterly meaningless if it is disconnected from the reality of marketable goods and services.
Which brings us into the second principle of MMT, which is that the State can create “pure” money by emitting bills of credit (issuing debt). The money can be “forced” on the public by making it exchangeable by recognizing it as legal tender.
There are several problems here, of which we will deal with the most minor issue first: legal tender status. Monetary conspiracy theorists especially assign a mystical significance to “legal tender.” This is probably due to the fact that there is an element of coercion in something having legal tender status, defined in law as,
. . . that kind of coin, money, or circulating medium which the law compels a creditor to accept in payment of his debt, when tendered by the debtor in the right amount. (“Tender,” Black’s Law Dictionary.)
|You can run, but you cannot hide!|
In MMT, government-issued bills of credit are the only legal tender, and thus the only legal money — an understanding contradicted by the definition of legal tender itself. In MMT, therefore, the definition of money changes from “anything that can be accepted in settlement of a debt,” to “an officially authorized medium that must be accepted in settlement of a debt.”
Money thereby changes from the medium of exchange, to a medium of exchange — which makes a big difference in the understanding of money. It implicitly separates money from the goods and services that are being exchanged by admitting the possibility of other media of exchange.
Limiting money to being only one of many media of exchange means that it is possible to exchange marketable goods and services without using money. This is utter nonsense when money is defined as THE medium of exchange and specified as “ALL things transferred in commerce.”
|Ja, mein funny money ist everywhere, aber no one laughing is!|
At the same time, limiting money to being one of a number of media of exchange also means that, because marketable goods and services can be separated from money, claims or “purchasing power” can be created by non-producers. These claims can be forced on others if the non-producer has enough power to do so.
Thus, MMT, by separating money from marketable goods and services, and the creation of money from the production of those goods and services, destroys the whole concept of private property. Money is no longer the means by which producers exchange amongst themselves the marketable goods and services they produce, but a means by which non-producers with power steal the productions of others by asserting property in that which others produce by means of their labor, land, or technology.
Legal tender status is therefore crucial to the success of a monetary system based on MMT. It “legalizes” what would otherwise instantly be recognized as theft on the part of the State.
|Oo-la-la! I have taken over zee world!|
Incredibly, as we noted, this is actually only a minor problem with MMT. Absent 100% surveillance of every act by every person in an economy, people are going to use other media of exchange than the official government-issued legal tender. No economy can function if only government bills of exchange can be used to transact business. Even in the most rigidly controlled communist society, “non-monetary exchanges” take place . . . with the caveat being that, in reality, there is no such thing as a “non-monetary exchange.”
We already covered another major problem, that MMT — despite its alleged principle — treats money and credit as a commodity. This turns the money supply, M, into the independent variable in the Quantity Theory of Money equation, and V, P, and Q into dependent variables. Mathematically, this is nonsense, as you can’t solve an equation that has one independent variable and three dependent variables.
The major conceptual problem with MMT — with the whole of the Currency School, in fact — is the idea that the State is or should be in complete control of the economy. This, presumably, will prevent private interests from seizing control of the money and credit system and manipulating it for their own advantage. It does not, however, prevent private interests from seizing control of the government, and manipulating it for their own advantage . . . which is all the easier to do when the government controls money and credit. . . .
|You have learned well, my son.|
This, in turn, is all the easier to do with “pure money,” that is, money that stands for nothing except the State’s power to take what others have, offering nothing in return, thereby abolishing the whole concept of exchange and of contract, and thus the whole notion of commutative justice. This it does by emitting bills of credit and mandating that this “pure money,” not diluted by being tied to actual marketable goods and services, is the only legitimate money when the only thing legitimizing it is the pure force of the State.
This is what Georg Friedrich Knapp called “chartalism,” the “State Theory of Money.” By being “pure,” money is transformed from the medium of exchange into a medium of control and coercion . . . explaining why MMT found such ready acceptance as the new totalitarian governments began spreading in the 1920s and 1930s following World War I.
From a means of exercising private property, under MMT money became a way of destroying private property.
This brings in the third principle of MMT, that money is not a medium of exchange at all, but a standard of deferred payment. Government money is debt the government may reclaim through taxation.
This, of course, is clearly implied by the concept of “pure money” that is completely divorced from production. Since nothing is exchanged in the creation of “pure money,” exchange itself is abolished, as are, of course, private property and contract, as we will see in the next posting on this subject.