A couple of quick thoughts (well, maybe not so quick after all). If you compare John Locke’s ideas of government with Thomas Hobbes you can see two different ideas of money. In Locke’s theory the individual is the most significant unit of society. Money, then, arises from the need of individuals to have a way to exchange value for value. Hobbes saw the State as the most significant unit of society, so money is something the State creates and enforces use (by way of taxation and legal tender laws) as a means to control the social order.

So if you follow from Locke’s ideas (as I do), money is created by the need of individuals to exchange value for value, to store value for future exchange, and to measure value.

If you can imagine the idea of “value” as a static thing which does not change (meaning there are only a fixed number of “things” people find value in), then theoretically the money supply should remain static as well. But when we introduce innovation into the mix, meaning people are taking raw materials and making them useful in new and interesting ways, then “value” is created where it did not exist before. I define “wealth” as the difference in value of a useful thing and the value of the underlying raw materials use to make that useful thing. “Value” then is how we describe that “improvement” and money is necessary to exchange, store, and measure that value.

And so if you think of “growth” in the economy as an increase in the volume and value of transactions which results from people “creating wealth” by making things useful in new and interesting ways, the money supply should grow in tandem. The classic definition of inflation is the difference between the growth of the money supply and the growth of the economy (regardless of what happens to prices).

I think of “currency” as monetary instruments (mainly paper bills and metal coins). In a sense a credit card is also a monetary instrument, but it only represents potential money if you do not use it. I am wondering if this is what you mean by distinguishing between the (potential) supply of money and the money supply.

I think you are largely, but not entirely, right about the Central Bank model. QE is a rather deceptive process because the Fed does not participate in the auction for Treasury Bonds, but tells the 23 primary dealers what they intend to buy from the secondary market. And so, very much as you point out, doing so requires rents to be paid both to the primary dealers and to the secondary market. (And there is your money tree for political donations.)

Interest rates do not feed into this, but end up being an output. If the money supply were actually restrained, either by “rules based monetary policy” or its simplest form (a gold standard), then government borrowing would be a demand increase against a restrained supply, which should result in a higher price for that money — higher interest rates. But when the Fed enters the market for that debt (by way of QE demand for bonds in the secondary market) it can arbitrarily expand the money supply to absorb the increased demand from government. It is important to understand that this dynamic is not in response to economic difficulties but to the demands of a government addicted to deficit spending. The government essentially cannot continue with its pretense of what it can provide unless it can continually roll over its debt at lower rates. Ergo the need for the Fed to expand the money supply to prop up government deficits.

Now when you push interest rates all the way down to zero AND you permit essentially speculative derivative products to be traded and companies are allowed to buy back their own shares (all of which used to be illegal for very good reasons) you get to a point where the economy becomes more and more like a casino with Central Banks as the window — and the chips are free. It is like building a factory on one side of the street and a casino on the other. Once you make the chips free it is only a matter of time before all of the innovation and creativity which is supposed to be in the factory crosses the street and gambles instead.

Productivity then stagnates and wages along with it. But the winnings at the casino end up winding their way into real estate, driving up rents. Wages remain stagnant (or drop in real purchasing power terms) and rents rise… think about that next time you see a homeless person.

I understand you to be proposing to take the rents otherwise paid into the financial sector and allocate them to people as income. The abject abandonment of true capitalism in favor of the shallow, soulless corporatism of today makes the proposal look attractive on the surface. The problem, though, is when you go back and understand what wealth really is (over and against money): You do not become wealthy by obtaining/saving money. You obtain and save money by creating wealth.

The global pyramid scheme of rent extraction that is today’s economy starts with dishonest people gaining and keeping political power by using debt to make promises which cannot be kept because government, by its nature, does not create wealth. The ever larger share of the money supply devoted to government and deficits, the less money ends up deployed to genuinely productive, wealth creating uses. That is the problem we face. Merely redirecting rent from one place to another will not reintroduce us to the creation of wealth, and as such does not really address the roots of the problem.

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I am a charter member of the pocket-protector set, but old enough to make fun of them and otherwise have a healthy skepticism of tech. https://goo.gl/2z5Snr

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