Reflections on The Deficit Myth

Posts in this series

The Deficit Myth By Stephanie Kelton: Introduction And Index
Debunking The Deficit Myth
MMT On Inflation

The first three posts in this series address the Introduction and the first two chapters of Stephanie Kelton’s The Deficit Myth. In this post I add her definition of money and some of my thoughts, and invite readers to do the same, either questioning points she made or applying her ideas to our society.

1. Modern Monetary Theory starts by asking one question: how does money work in a fiat currency nation. Kelton defines money in her first published paper: The Hierarchy of Money. This is a very readable discussion of the range of opinions on this subject, focused on the argument between the Metalists and the Chartalists, which began over 400 years ago. [1] Kelton starts with a definition of money. [2]

Money represents a debt-relation or promise to pay that exists between human beings. It cannot be identified independently of its institutional usages, because money represents a social relationship. … The creation of money, then, is simply the balance sheet operation that records this social relation. (Emphasis in original.)

According to Kelton, the Chartalists called money any token representing a debt relationship. Thus, a postal stamp is a money: it represents an asset to the owner and a debt to the Post Office which is satisfied by delivering a letter. A plane ticket is money: it represents the obligation of the airline to fly the holder to a particular place at a particular time. Bank deposits are money: they are a liability of the bank which must deliver money at the direction of the account holder. The rule for creation of money is the agreement by one person to hold the debt of another. [2]

Now consider the dollar. The dollar is a creation of the federal government. Kelton writes:

Thus, State money is created when the public agrees to hold (as an asset) state-created money (a liability to the State) which is required in payment of taxes.

This explains why currency and other forms of dollars (bank deposits, treasury securities, and bank reserves at the Fed) are liabilities of the federal government. We users agree to hold these dollars as assets. We can use them to acquire different forms of assets from sellers, obtain services from providers, and pay taxes. When the government collects taxes, it matches that asset with a corresponding liability and clears to zero.

The point of this exercise is to demonstrate that money is a balance sheet representation of the debt/asset relations between human beings, a social relationship. That understanding is crucial to the arguments advanced in The Deficit Myth.

2. Kelton calls for a Copernican Revolution in the way we think about money. This, of course, is a reference to the Copernican Theory, which said that the earth revolves around the Sun, and not vice versa, despite what we see with our own eyes. The ramifications of the Copernican Revolution eventually led to a complete change in our understanding of the nature of reality. [3] The revolutionary change she describes is that US government spending is not constrained by its ability to tax and borrow, but by the actual resources available, labor, material, and the organization of production. One important part of The Deficit Myth is the description of the kinds of changes we have to make in our own thinking. But there are many more revolutions. Here are three.

a. Congress ducks policy arguments by turning them into discussions of budgets or into political games. That never made sense, because all budgeting is about priorities. Games like pay-fors or one-upmanship on military spending were always perverse, but both parties pretended these were real arguments. They aren’t. MMT strips away one more layer of pretense.

b. Mainstream economists refuse to look honestly at MMT. Marion Fourcade and her colleagues at Berkeley published a paper examining the economics profession titled The Superiority of Economists, a devastating critique of their pretensions. Among other things, economists tell us that markets should make our decisions about allocation of resources, and that anything that interferes with the operations of markets is harmful to society. When government spending is between 35 and 45% of GNP prior to the pandemic, it’s stupid to argue that markets are the best form of allocation of resources. When capitalists exercise outlandish control of government spending priorities, it’s stupid to argue that markets should determine what we can and can’t have.

Many economists hold themselves out as experts on all sorts of things, including the pandemic. In the MMT world, as Kelton points out, economists would concentrate on predicting the inflationary effect of spending choices, and get completely out of the business of telling us how we should make decisions about allocation of resources.

c. Historically, people thought that the most important problem facing an economy was to accumulate capital and turn it to productive use for the benefit of society. The chosen solution was Capitalism, and to encourage capitalists to invest, we allowed them to reap outlandish profits through monopoly, grants from the Crown, and other favors, while ignoring the fraud and corruption those policies entailed. This continued in the US, with gigantic giveaways to railroad and mining companies, ludicrous levels of patent protection, and grotesquely unfair tax rules, while mostly ignoring or even praising graft, corruption and fraud. The results of coddling capitalists are rubbed in our faces every day.

MMT gives us space to think about the way society could operate to make our lives better. It allows us to make decisions about what we need and want. We do not have to accept whatever is on offer from Capitalists. We can decide based on our principles, morals, values and dreams. MMT puts us in charge, and frees us from the domination of the rich. It opens the door to the “euthanasia of the rentier”, as Keynes calls it in The General Theory of Employment, Interest and Money.

Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.

[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] Fun fact, Adam Smith may have held Chartalist views. Kelton quotes him thus:

A prince, who should enact that a certain proportion of his taxes should be paid in a paper money of a certain kind, might thereby give a certain value to this paper money.

[2] Kelton doesn’t go into the history of money, but this BBC article is a fascinating picture of trade in Ancient Sumeria, and gives a tantalizing hint about the origin of money in record-keeping and accounting for trade.

[3] For a fascinating and occasionally comprehensible discussion of this new understanding, see Reality Is Not What It Seems, by Carlo Rovelli.

56 replies
  1. earlofhuntingdon says:

    Nice work. Many thanks.

    As an aside, I think Kelton would say the principal debt relation that gives fiat money its utility is the government mandate that it be used to pay its taxes. Taxes being a universal obligation, that gives money a value for everyone, which enables it to be exchanged for or in payment of other debt obligations.

    • Bruce Olsen says:

      The debt relation is necessary but not sufficient; the state’s ability to commit violence is also required.

    • Ed Walker says:

      I know MMT argues that the requirement that we pay taxes in dollars is the central feature that makes us accept it as an asset. We have to get hold of the money to pay our taxes. That feels like a just so story to me. Congress has done more: it designates the dollar as legal tender. 31 USC Sec. 5130:

      United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.

      Legal tender means that the offer of dollars satisfies a debt. In effect, any debt enforced by a court can be satisfied by dollars. To my mind, this feels like it should be a part of the MMT story. The law has a long tradition in the US.

      • Bruce Olsen says:

        In the two linked articles, Innes spends some time debunking the idea that money has ever taken any value from gold or silver (or beaver skins, or any other commodity), rather than being mere tokens.

        As part of that discussion, Innes cites various times in history when legal tender laws were ignored, suspended, or simply did not exist–yet commerce carried on without them. I don’t know if he’s the first to conclude that taxes, not laws, drive the value of money but the two articles above are the earliest two documents listed on, a great reference for the student of MMT.

        Even today there are many ways to pay a “private debt”, such as local currencies or cryptocurrencies, and they all arose despite the US legal tender law. The only requirement for this type of money is that both parties accept it to discharge debt.

        So only the “public debt” portion of the legal tender law has any importance, and it should be clear there’s no need for that to be stated in actual legislation (instead of a rule or policy statement of some kind). The key factor is considered to be the requirement to use it to pay taxes, not the form of that statement. One might consider that distinction to be splitting hairs, I suppose, but it seems unlikely that a mandate that didn’t cover taxes would not accomplish nearly the same thing,

  2. Bruce Olsen says:

    If you’re interested in something deeper than the BBC piece, I strongly recommend A Mitchell Innes’ pieces:
    “What is Money” (1913)
    “The Credit Theory of Money” (1914)

    The language is a little convoluted, as was the style of the day, but they’re very readable.

    (I split this into two because of the multiple links; sorry).

  3. Ken Muldrew says:

    The rentiers, I suspect, will not go quietly, but perhaps we can persuade them that it is a debt that they owe and they will surely agree that one must always pay their debts.

    One thing I wish for from MMTers is a more expansive treatment of the various levels of government and the different types of taxation and budgeting that they require. MMT advocates are always careful to specify that they are talking about governments with a sovereign currency, however, most politics is local, and local governments do not have a sovereign currency, and so the MMTers would do themselves a favour by talking about the taxes and budgets that are most familiar to people (at least in works aimed at the general public rather than economists). Municipal governments, for example, will proclaim that they must only spend what they can recoup in taxes. But a significant portion of their budget comes from transfer payments from the central currency-issuing government (that are sometimes known in advance and can often even be counted on) and another large chunk of their budget comes from grants (that are completely unreliable and require huge amounts of time and effort to apply for) from the same currency-issuing government. Thus their budgets are not fully constrained by what they can tax, but exactly what the relationship is between the currency-issuing government and the local government is often hidden or obscured by complicated procedures. As well, taxes, fines, and fees imposed by a municipality do not directly drive the value of money since they are not being collected by a currency-issuing government (so it’s confusing to use the same word for what appear to be rather different things). But on the other hand, if you resist paying your municipal taxes, and keep resisting, eventually you’re going to find yourself resisting federal laws and the money will be taken, so maybe the difference isn’t quite what it seems.
    MMT clearly should have something to say about this and I would be surprised if there weren’t policy implications that are not obvious to the non-economists among us.

    • gnokgnoh says:

      Ken Muldrew, the entire discussion of MMT is at the federal level, where we have the least influence. It seems to me that the biggest influencers of the public policy debate about spending priorities at the federal level should be state and county governments, not large corporations and lobbyists. Unemployment benefits were distributed through state government, and often supplemented state unemployment insurance, which resulted in wildly differing results…depending on the state and their policy priorities, but I have way more influence over state and local government than a bank. PPP and SBA money during this epidemic have been distributed through banks, not the state government, which resulted in wildly differing results depending on the bank and their method for determining who did and did not get funds.

      It is ironic that discussions of funding priorities are central to state and local government and can be most heavily influenced by the members of the community at the municipal level…exactly the levels that do not have access to fiat money, except indirectly, often through federal grants or other spending usually funneled through the state government. Our borough’s budget goes to the school district, police, fire, waste and recycling collection, roads, building inspections, sewers, and lesser expenses, almost in that order. The level and quality of these services are the subject of fierce debate, especially now that property and school taxes have been suspended for jobless residents due to the epidemic (budget cuts). But, that’s it. They can approve/deny special projects, zoning variances for businesses or other development (also the subject of fierce debate), but the monies are almost 100% coming from a higher taxing authority or the private sector.

    • Bruce Olsen says:

      It’s been said here before, but MMT is policy neutral. The GOP uses MMT’s principles to spend freely on their priorities; there’s no reason progressive policies can’t be paid for the same way, so ponder how to federalize the things you think should happen. Here are a couple to give you a sense of how it would work.

      — The WPA is a rough conceptual model of what could be done to replace unemployment with a JG. Federal dollars would spent by each locality to hire the labor it decides it needs. As long as we don’t try to suddenly hire all the (say) carpenters in the country at once, inflation would remain under control (to say nothing of the businesses that would flourish with all these new wage earners in the economy).

      — Eliminate the FICA payroll tax and allow wage earners to simply spend the money into the economy. The extra 15%, year in and year out, would encourage far more economic growth than the games we currently play with the collected funds. This makes it more likely that the real resources that retirees will want to buy when they finally do retire will actually exist, decreasing the likelihood of inflation (to bring it back home to Ed’s theme).

  4. PeterS says:

    About the often maligned patent monopolies: my understanding of the patent system is that it is a deal between the government and innovators, the deal being you publish your new ideas and we’ll give you a monopoly for a limited period of time. The publication of a new idea inspires third parties to make further innovations, while the possible monopoly (not all patents are granted) gives the first innovator a chance to cover the costs of expensive R&D. Without that chance there would be less of an incentive for expensive research, e.g. into new drugs. The first part of the deal is often overlooked. Occasional pricing abuse is not an indictment of the whole system – 3 million patent applications are filed around the world every year.

  5. Chetnolian says:

    WE ought to look at the question of the origin of capitalism.

    Historically it was the means by which productive effort was made possible, be it extraction, manufacturing, trade or service provision. The wish to undertake the extraction, manufacturing, trade or service provision created the need to raise the finance. Many engineering pioneers were serial financial failures, such as Isambard Kingdom Brunel . The Brooklyn Bridge was a financial mess.

    Some time in the late 20th Century, mainly in the US, there was a redefinition of the purpose of capitalism as applied to activity. Whereas the purpose of companies was to undertake their purpose, whatever it was, and in doing so make money, their primary purpose became to make money, fulfilling their activity became a means to an end. We have a worked example playing out before our eyes at the moment. For a long time the Boeing Company was primarily an aircraft company which made technically excellent aircraft and generally made money doing so, but sometimes took immense financial risk because it seemed the right thing to do to further the purpose of making planes.Then it was transformed into a company designed primarily to make money. The change was obvious and deliberate. The result, and it really does not take many deductive steps to make the connection, was the 737 Max.

    • gnokgnoh says:

      The theory of capitalism is that Boeing should manage its own safety precautions, because planes falling out of the sky are bad for business.

      • earlofhuntingdon says:

        Planes falling out of the sky is not bad for business if you can game the legal system to avoid liability, if people still need to fly, and your planes are no worse than your competitors. The variables leave so much room for maneuver. It’s one of the great arguments for government regulation. I suppose that’s one reason neoliberals consider that a contradiction in terms, in part, because only government is big enough to restrain their peculiar form of capitalism.

        • gnokgnoh says:

          EOH, 100% agree. That was intended to be /s, in part. What we have is not really capitalism. Planes that fall out of the sky are bad for business, if your liability/insurance costs go too high. Regardless, you did not address sales and profit, capitalism’s business model. Boeing’s stock price to earnings ratio on Sep 30, 2019 was 58.35, today it is 0.0, and their shareholder equity is -$9.36 billion. In theory, Boeing would be long dead by now.

          Ironically, they were offered a $17 billion federal bailout loan and raised $25 billion from private investors instead. Strange world.

    • P J Evans says:

      For couple of years, the guy running SoCal Gas was some @#$%^&*! out of accounting/finance. He damn near killed it by not funding facilities maintenance. That was how Aliso Canyon happened.
      And one of my uncles quit his job (VP at an offshore drilling company) after bean-counters took over and started requiring justification for *routine maintenance* on the rigs.

      • Bruce Olsen says:

        In Silicon Valley (where I spent most of my career) HP is viewed as the epitome of this kind of failure.
        Carly Fiorina’s runs at public office elicited a lot of milk-snorting, as she was widely recognized as the executive who completed HP’s demise.

  6. Chetnolian says:

    My point was that when Boeing changed from a company whose purpose was making good planes and thus making money into a company simply to make money, they institutionally forgot how to make planes properly. The failure of the regulator to catch them out is a whole other story, though of course related to uber-capitalist philosophy.

    • earlofhuntingdon says:

      I agree. We may have discussed that before in the context of the financialization of the economy.

      According to that version of capital, everything is a search for gold in the Sierra Nevadas. Immediate extraction is the only business purpose. Wash away the mountain and silt the bay? No matter, as long as we get the gold. Leave enough resources to allow a business to operate as a going concern, with resilience, to survive, grow, innovate? Poppycock. A “waste,” not capital’s purpose. Every cow must be turned into hamburger today. Any constituency or interest that disrupts the flow of cash to its owners must be rooted out and discarded. That extremist version of capital is a malignant growth that should be excised from the body politic.

      • Bruce Olsen says:

        “Every cow must be turned into hamburger today.” Indeed. Not even into, say, steaks, which take time and care to create. Into the grinder, Elsie.

        The linear economy, which grew up along with capitalism as a result of the industrial revolution, shoulders some of the blame for the focus on profit (and tolerance of waste), and it will continue that way until the cost of extraction is higher than the alternatives. Circular economy advocates are trying to change that, but CE is staunchly opposed by neoliberal propagandists.

        For those unfamiliar with the term, a linear economy 1) extracts raw materials; 2) produces products; 3) discards products at end-of-life. CE academics are struggling to produce a robust definition of CE but describing it as recycling everything (and extracting nothing) is a fair entry point to CE thought.

        The point of bringing it up is that economic benefits (read: profit) are the most-often cited justifications for CE. That our survival may depend on CE, not so much.

    • bmaz says:

      Chet, when I was a kid, we flew a lot, to everywhere in the country. When a little kid, there were still prop planes, the 707 was just taking over. And then there was nothing but jets, and Boeing was still the gold standard. I did not want to fly on anything but a Boeing. Well that day is gone, I now want to fly on anything but a Boeing, even when I eventually am willing to fly again.

    • Geoguy says:

      I think that Boeing made the big turn away from good civilian airplanes when they merged with McDonnell Douglas. Boeing was the second largest defense contractor in the world based on 2018 revenue, (Wikipedia.)

      • Ed Walker says:

        I think so too. Boeing was run by engineers. McDonnell Douglas was run by finance guys. They somehow took over and wrecked the company by prioritizing profit over quality aircraft. Decisions like spreading production around the world meant loss of quality control. Setting up US plants in non-union low-wage states led to loss of quality. It was as if the engineering/manufacturing institutional knowledge was worthless because it couldn’t be turned into hamburger overnight as EoH put it.

        • earlofhuntingdon says:

          McDD prioritized global political positioning – to enhance and in exchange for sales – and profit extraction. Like many other companies, it adopted a PE model. The assumption seems to be that companies run themselves and profits naturally materialize. Management’s job is to extract them as quickly as possible, all other interests – manufacturing and product quality from itself and its vendors, customer and public safety – be damned.

          That sees a business only through the eyes of private equity’s financial priorities. For decades, the Japanese avoided that destructive myopia by rotating their high-flyers through several disciplines: finance, manufacturing, marketing, IT, and so on.

          The reality is that a business produces profits when it is both lucky and well run. That requires resilience, which requires resources: reserves of money; limits on debt; quality machinery and work places; trained staff, who can do today’s job while learning tomorrow’s; an array of vendors who have similar resources. It’s a web. Private equity, on the other hand, does not run a business. It runs an abattoir.

  7. Rapier says:

    “Thus, State money is created when the public agrees to hold (as an asset) state-created money (a liability to the State) which is required in payment of taxes.”

    No nation in the world currently creates money(Currency) beyond printing it. They do not “issue” it in any sense. Central banks, which are not governments but sanctioned arms of government, Banks “issue” money (currency), which they only “issue” as a draw from a bank account.

    • DTK says:

      Dear Rapier,
      *No nation in the world currently creates money(Currency) beyond printing it.- A distinction without a difference.
      *They do not “issue” it in any sense.- The government does not supply, send out, make known, or derive money?
      *Banks “issue” money (currency), which they only “issue” as a draw from a bank account.- Banks are agents of the government and what is drawn from a bank account is created by the government. If what was drawn from the account was not created by the government then the draw would be counterfeit.
      Thank You

      • Rapier says:

        Banks including the Fed, are not agents of government. They are charted by governments and allowed to do stuff.

        You can have it your way but the banks will never accept a currency that the Treasury prints and uses to pay its bills. Such a currency would not say ‘Federal Reserve Note’ because it would not be a Federal Reserve Note. Banks would not and could not accept this money for deposit.

        Money is not an asset. Money is a liability which balances against assets held by banks. MMT money, conjured out of thin air negates this balance of assets and liabilities.

        Now one can say the current mechanism is the government issuing money, it isn’t but let’s say it is. In any case the current mechanism is the only way that Federally charted banks will operate. Under current law and simply by the power of banks which will fight to the death to have exclusive rights to create money.

        Someone define a mechanism and the laws required for the government to issue money outside the current system.

        *Bonus question. What happens to the money that is used to pay back a bank loan?
        (Pssst. It disappears. Gone, Poof. The asset, the loan is paid off and is gone, and so then too is the money gone. Double entry bookeeping. MMT proposes to end 600 years of double entry bookeeping

  8. DTK says:

    Thank you for the post. A good companion author, to enhance current MMT insights, is Michael Hudson. Try his most recent book:
    …and forgive them their debts: Lending, Foreclosure and Redemption From Bronze Age Finance to the Jubilee Year

  9. Savage Librarian says:

    In the article below is a brief interview with Kelton that was helpful to me. I don’t quite have the skill set to understand economics. But I have to admit Kelton makes much more sense to me than anything I have heard before. With the limited amount I now know, I have to say that I hope Congress pays attention and works together to understand this.

    Speaking of Congress, I have to wonder if acceptance of MMT might also lead to a better way to provide a means for funding housing, travel, and advertising expenses for its members and potential members. Maybe this kind of funding might help reduce the excessive amounts of external campaign financing and political influences.

    “Here is how ‘Modern Monetary Theory’ could save the American economy” – Raw Story, 6/30/20

    • PeterS says:

      In that article she says “There are limits. But the limit is not deficits. It’s not the size of the national debt. The limit is our economy’s real productive capacity.” I can’t immediately judge how reassuring that is. Also, is the US in a unique position because very often the dollar is the default currency ?

      • jonf says:

        Real resources. Imagine health care gets so expensive that you cannot afford to buy it, no matter your great pension bc we don’t have enough doctors or hospitals. For a bullet the war was lost.

  10. Alan K says:

    The things that I think are missing from the MMT discussion of money:

    1) The periodic need for Jubilee. The nature of private debt is that through natural processes it tends to accumulate. There is a good discussion of this in “Debt: the first 5000 years”

    2) The MMT prescription for managing inflation is simply to stop spending, or to raise taxes. This is difficult in the extreme. Think back to the inflation of the 1970’s. There was an external shock to oil prices, and there were many contracts with inflation riders (this was not a bad thing IMO, just difficult to manage). The prospect of a government being able to provide a countervailing deflation is – to put it mildly – hard to imagine.

    My POV is that MMT is correct on the deflation treatment .. we do need to ignore the debt and keep spending, but wrong on the inflation treatment .. we need an entity that pulls money from the system – a Central Bank that can force dealers to buy bonds.

    Since the Fed has signaled for many years now that fiscal policy is absolutely needed, it seems they are on board the point of view that the deficit doesn’t matter. But to counter inflation, you need to have a huge store of bonds to sell. If you just allow the government to spend without issuing bonds, then you are hampering the capability to fight inflation.

  11. jonf says:

    When a monopolist raises prices what can control it? Nothing, since the monopolist decides what he would like in payment?

    • earlofhuntingdon says:

      One way that MMT differs greatly from neoliberalism is its acceptance that government has an important role to play in the economy. For one thing, it doesn’t elide away – as does neoliberalism – that markets exist only because of government, which sets rules, enforces contracts and payment, imposes sanctions for failing in those things, etc. It influences behavior and inflation through taxation. It reins in monopolies, for example, through anti-monopoly, price gouging, and intellectual property laws, highly taxing monopoly profits, and so on, rather in the manner that a body reacts to metastasizing cancer cells.

      • Bruce Olsen says:

        Neoloberals do recognize the need for a strong state. It’s the big difference between NLs and good old laissez faire economics, or libertarianism (which contemplates a caretaker state).

        NLs need a strong state for its ability to participate in international trade organizations, whose rules can then be manipulated to favor business, through policies such as trans-border capital flow. The state is also needed to restrict trans-border flow of labor, enabling business to play countries against each other so they can periodically shop around for the best deal.

        I’ve plugged Quinn Slobodian’s 2018 book, “Globalists: The End of Empire and the Birth of Neoliberalism” here previously. It clearly illustrates the emergence of the neoliberal movement.

  12. Keith Ryan says:

    I find Kelton’s style verbose and very repetitious. It would be much easier for me to follow her arguments if there were some simple diagrams.

    • DTK says:

      Dear Keith Ryan,
      The best way that I have found to understand MMT is to read it, read it again, and reread it. It is helpful to read and listen; alternating between, Bill Mitchell, Warren Mosler, Kelton, and Randall Wray. Mitchell offers a short weekly MMT quiz at
      Thank You

    • PeterS says:

      I don’t need diagrams but I wouldn’t mind the words in a better order; or, ideally, a much bigger brain.

    • Bruce Olsen says:

      I’ve encountered a few issues when discussing MMT with interested people, but the main one has been trying to suss out and neutralize the random stew of poorly-understood economic ideas that fills most people’s heads. It’s a real challenge to communicate an idea if you don’t know what the listener knows, and it’s easy to reinforce false knowledge by saying the wrong thing. That’s why reading the folks DTK mentions (and viewing their YouTube videos) is needed–you alone can know what you don’t understand.

      The other problem is that almost all the criticism is at best based on economic ideas that aren’t correct (like Krugman), or at worst intended to deceive (like any follower of Hayek or Mises). Or just Larry Fink saying “MMT is garbage.”

  13. fishmanxxx says:

    I usually follow emptywheel on posts dealing with politics and value the perspectives offered by the original posts and the ensuing comments. I have only just started reading these Walker posts and they appear to be sufficiently contrarian to older precepts of the economy that I might learn something. I’ve often observed that you can have 10 economists together in a room and you’l have 10 different opinions.
    Perhaps I believe too much in the scientific conservation of energy principle (retired engineer) that you can only transform energy and not create energy from nothing? That could explain why I am having difficulty in understanding how printing money doesn’t deflate its principal value? I hope to learn here why my thinking is off?
    Without hopefully sounding like a conspiracy theorist, I tried to rationalize that devaluation of US $ is ´restrained’ by global systems that wish to protect the value of the US $ as it often forms the basis for a country’s reserves and why would a country want to see their vaults emptying. But what is that ´system’ if indeed it exists?
    If this incites discussion great, otherwise it’s likely a left field concept and I’ll just go back to my calculator and do some goesintos (Jethro Clampett reference for the more senior audience).

    • Ed Walker says:

      As this post says, we start with the proposition that money is a way of keeping track of debt. This is a revolutionary way of looking at money for most people, and it takes a while to get used to it.

      One reason it’s hard to grasp is that all of us learned a different view of money, as something with intrinsic value, meaning that there were limited quantities of it. This was Aristotle’s view, and it carried over into Metalist theories. For centuries coins were made from precious metals, and had intrinsic value. That started changing over the last two or three centuries, but it has a strong grip on the mind, because it just seems right. Just like the idea that the sun revolves around the earth seems right.

      In MMT, money is just bookkeeping entries refleting the debt/asset relationship between human beings and their institutions. There is an unlimited amount of bookkeeping entries, and using some doesn’t deplete the supply.

      Another reason is that there are people who have a vested interest in the current understanding of money. They have spent untold amounts of money reinforcing those views. For example, conservative groups have worked to get capitalism taught in high schools and have largely succeeded in teaching neoliberal doctrine. As Kelton points out in her book, politicians of both parties buy this, and repeat it, and argue it, and use it in political ads.

      It takes a lot of work to reverse that indoctrination. Several years ago I read Modern Money Theory by Randy Wray, which is more of a textbook, and have been trying to get my head around it ever since. It’s tough to face up to the fact that what I learned about economics in several courses at Notre Dame decades ago is just not right. But it was easier for me because for the last few years I’ve been rereading econ taxts, papers and some books, much of which you can find in my archive, just click on my name at the top of the post.

      • fishmanxxx says:

        Thanks for your words of wisdom and patience and i will proceed forth in this new frontier!

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