Money, especially “fiat” money, is a funny thing. From a literal perspective, it is almost totally worthless, useful for wallpaper, firewood, and origami, and that’s only if it comes in paper form, as opposed to bits and bytes flowing from your employer to your bank account to the government and your creditors. Yet its importance is vast; it’s so important, in fact, that a deep confusion has arisen over what it is, what it’s for, and how to manage it.

            Let me put my view up front: money is a tool, a utility, a public service whose value is entirely dependent on the outcomes it enables. Fundamentally, money is an expression of political will for the purposes of mobilizing real resources towards creating wealth and prosperity.

            Money is created by governments as the expression of the collective political will of their polity. Bitcoin is not money and never will be; it is a speculative commodity whose volatility betrays its underlying uselessness for the purpose for which it was created. Real money has a lot of commodity-like properties but is not truly a commodity.

            The only thing required to “back” money is political will, which, to define for the purposes of this conversation, is the ability of a polity to collectively mobilize for collective purposes, often but not always through governing institutions. The tethering of money to commodities, namely gold and silver, was required in days of yore to generate the necessary political will when there was a lack of necessary trust in the governing institutions creating money. The value of money has often been confused with the value of its backing commodities for this reason, but the salubrious effects of a money economy come from the nature of money itself, and in fact were hindered by metallic standards. The vast economic growth seen in the West since the abandonment of the gold standard is no coincidence.

            Money is a tool that creates the potential for commerce where before there was none. It creates units of account that allows commerce to occur at lightning speed on massive scale; a medium of exchange that allows for capital and labor to engage in far more complex and abstract pursuits than previously; and it creates a store of value that allows the production of tremendous amounts of goods and services to meet demand over a much wider scope of time and space than was previously possible. Money is an amazing, awesome tool because it has allowed for these things; it has allowed for international trade and industrial-scale farming and professional art and a billion other amazing things that have vastly improved the quality of life of many of the humans living on Earth. But it is only amazing and awesome to the extent that it achieves this end. A hammer can be beautiful but is only valuable if it pounds nails into wood. Money can be beautiful but it can only be valuable if it promotes full employment, economic growth, and rising standards of living.

            The United States is not “out of money.” The United States cannot be out of money, ever, for any reason, with the sole exception of a collapse in political will, which we luckily avoided this past summer. What could happen is that the rate of money creation outstrips the capacity of the economy to produce new goods and services, which causes excessive inflation. That happened in the 1970s. What could also happen is that the rate of money creation flags even as the economy operates far below full output. That happened in the 1930s; it is also happening now. Neither is desirable, but both are avoidable. That it is happening now should cause a screaming to the high heavens; to the extent that it hasn’t it is because money is woefully misunderstood.

            We spent far, far, far too much time thinking about money as the end rather than the means. Let us take as an example the proposal of building a national network of high-speed rail in the United States. Oftentimes opposition to this project (which I support but is neither here nor there) takes the form of costing too much money. This is nonsense. If it costs $1 trillion the United States could create $1 trillion today in an instant and simply summon the resources to begin building. Doing so is not a terribly great idea, but it’s not the fundamental obstacle to building such a system. Real objections to such an undertaking would take into account the real costs of such a project – the steel and computer and labor and land and so on needed to create and maintain such a system – and weigh them against the benefits of such a system. The money, to the extent it is useful in this situation, is a metonym for the costs, and in a situation of full employment and capacity utilization in the real economy, is a rough estimate of how much private-sector economic activity would be displaced by the re-allocation of those resources towards the creation of a HSR network, or how much public sector spending would have to be redirected, or some combination of the two. In the current climate, however, where 1-in-6 Americans have little-to-no work, that objection is largely facile.

            But the question of political will is extremely important. It explains why Europe is drowning as parsimoniously as it explains why Brooklyn Bucks are a bad idea. Since money is a public tool created and maintained by the government to generate prosperity among its polity, a currency area should be aligned with an area of unified political will. This does not mean an area of unanimity – far from it. It only means an area with a single, legitimate government universally or near-universally acknowledged as such even when its specific iterations are unpopular or disliked. The United States, for the most part, has this (though lately that ground has become a bit shakier); it is why the allocation of resources between rich and poor individuals is the point of political concern today, and not between rich and poor states or metropolitan areas. Europe lacks this, and thus lacks the political will to re-allocate significant sums of money over national borders, as well as fatally limiting the power of its central bank (it also has numerous other deleterious effects for the future of the Eurozone, such as restricting labor market flexibility across borders). There is no reason to create Brooklyn Bucks, since New York City residents of all five boroughs pay a number of taxes and the money is then spent on what is best for the city as a whole, even if wealthy Manhattanites and Brooklynites are subsidizing development in The Bronx or Staten Island. So long as the United States has the political will to direct a substantial share of national resources towards collective ends, such as redistribution of wealth from workers to retirees, then the status quo will persist. The idea of a Europe unified by currency was elegant and beautiful; but it needed to be an expression of political will, not a creator of it. Money has a lot of powers, but it may not be able to do that.

            Money is why anything less than full employment is totally unacceptable in any economy, especially one as prosperous as the modern United States. Market monetarists and MMT’ers agree on more than they think (though I think the former has the better of the argument insofar as it correctly locates the center of the political will of money creation on the central bank rather than the treasury), and a fundamental observation that both make is that the vast economic problems and challenges many countries may face are fundamentally about the failure best allocate capacity, not utilize it. One can argue about the direction of the car, but not about how to make it go. That just requires fuel. Money is economic fuel; it is only when we are feeding our economy a steady supply and it is progressing at full speed that it even makes sense to discuss where the vehicle is going and why.

            This is why the national debt is not, fundamentally, nearly as severe a problem as it seems. Unless we face a grave collapse in political will, there is always money; the real problem is that we may accrue so much debt that we are either diverting far too many real resources towards repayment or we are suffering from inflation from failing to do so. But even this is an expression of a deeper problem – a failure to choose between cake-having and cake-eating. While there is a theoretically infinite amount of money, there is still a finite amount of people and stuff; and therefore still limits on what we can have. We can have a war in Iraq or we can have a national HSR network but not both. In this sense the national debt is, really, an enormous metonym, especially when it comes to the looming health-care crisis – it’s not a problem because of the money, it’s a problem because it’s a reification of the fact that the provision of health care is consuming more and more of the real economy. The reification of money – the substation of the discussion of real problems and their roots with the discussion of money as a cause and not a symptom of these problems – has become itself a grave social ill, an understandable but unforgivable thought disease that has captured far too much of the world’s political elite. It is only when we cure that disease – when we separate money, the nearly-magic wealth creating tool – from all the very real problems we have that fundamentally have nothing to do with money – that we will begin embarking on real progress.

            So let’s talk about money – how we need to make more, lots more, right now, to get the economy back to full output and full employment. Then let’s talk about real problems, and real solutions – and not once mention the word “money.”

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