One of the most ignored, yet troubling problems in the world today is the unquestioned assumption that money is and should be an instrument of public policy. Part of this is the result of confusing “money” and “currency,” but the problem goes much deeper than that, especially in Keynesian economics.
|Friedrich von Hayek|
Keynes’s magnum opus — or so he considered it — was A Treatise on Money (1930). That is, Keynes intended it to be his magnum opus until von Hayek shredded it . . . and missed the most important flaw, at least from the standpoint of economic personalism (or just plain personalism, for that matter). This is the idea that the State not only should have, but must have total control over money and credit, even to the point of defining money itself! As Keynes declared without presenting any argument or proof:
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.)
For some reason von Hayek never mentioned this passage in his (in)famous critique of Keynes’s Treatise on Money. All von Hayek said along these lines was that Keynes’s theory was collectivist. This, however, is the most collectivist and depersonalizing statement in the entire two-volume work!
|Pope Pius XI|
If you control money and credit, it means that you control not merely the life’s blood of the economy, but that of the flesh and blood human beings who make up the economy. Economies are not at the mercy of vague collective movements or impersonal “economic forces,” but aggregated individual acts by actual, living persons.
Pope Pius IX recognized this, and spoke very strongly about it. As he said in his encyclical on the restructuring of the social order (Quadragesimo Anno), perhaps not coincidentally in 1931, the year after Keynes published his Treatise on Money,
105. In the first place, it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure.
106. This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will.
Most people have assumed that Pius XI referred to the evils of capitalism in these passages, but they apply with even greater force to the evils of socialism. Nor was he the only pope to make money a particular focus. As Pope John Paul II noted in § 19 of Centesiumus Annus, socially just economic development is achieved in part “by means of a stable currency and the harmony of social relations, the conditions for steady and healthy economic growth in which people through their own work can build a better future for themselves and their families.” A stable currency is, of course, the antithesis of Keynes’s whole monetary theory.
|Pope John Paul II|
This brings us to the news story that started us thinking along these lines. China has announced (as if China were an actual person instead of an abstraction) that it is going to concentrate on monetary policy now. As stated in “China Looks to Normalize Monetary Policy as Economy Stabilizes” —
The People’s Bank of China will make monetary policy more precise and targeted, it said Monday in a statement after the quarterly policy meeting. The PBOC called on banks to make full use of structured monetary tools to increase the “directness” of its policies and vowed to achieve a long-term balance between stabilizing growth and preventing risks.
Of course, what the Chinese government — forget about the People’s Bank, as it is a branch of the government — mean by “normal” raises an interesting question in itself. Right now the People’s Republic has five, count ’em, five different currencies. Who can use which currency depends on which class you belong to in the classless society.
|Louis O. Kelso|
Money, as far as China is concerned, is simply another tool for controlling people, which was never the intention of money from the beginning. And that is? Since we’re using so many quotes already today, we might as well use one more, from Louis Kelso, and then let you compare it with what China — or any other country — is doing at the present time:
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, 54-55.)