Adam Sawyer offered a number of powerful comments on MMT on this blog yesterday, one of which included this para, which I thought worth sharing. It was written to compare old, effectively gold standard money systems that existed pre 1971 with what we have now, which is fiat (government promise to pay) money:
We aren't just cycling existing money around as we do the same thing our grandparents did 50 years ago. Instead we're creating vastly greater quantities of money to facilitate completely different projects using new technology to serve three times the number of people as our grandparents' economy was capable of supporting.
Imagine we had restricted ourselves to the supply of money available in 1945, what would that look like? Well we'd have had a massively deflationary currency and economic growth and technological innovation would have ground to a halt. There could have been people sitting around willing and capable of doing useful stuff, there would have been mountains of unexploited real resources. In the end 2018 would look exactly the same as 1945! We would not have had sustained economic growth and so would not have been able to support population growth. Many of us who now enjoy being alive would never have been born. That's the power of fiat currency!
I think he's right. Fiat money has made our modern world possible.
Not all of the change has been desirable, but let's not ignore much that not only has been, but which remains so.
The challenge is to tame the rest for practical use, as already noted this morning.
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“What if we hadn’t created new money since 1945?”
Gold would be very expensive.
(Amongst other consequences. Many of which I suspect we wouldn’t like.)
I have an energy supplier whose slogan is “power for purpose” (they’re not for profit and help the energy impoverished with any profits they do make) and it strikes me the same is true of money. It’s a joint enterprise created by all of society using that same joint enterprise for the benefit of all society. If it doesn’t have that purpose then what on earth is it there for? Why bother to create it?
You would have enjoyed a long debate I took part in on money at City this afternoon
We went from Babylon to Bitcoin, and back
Peter May –
You ask: why bother to create money if not to benefit all of society?
How many of the truly powerful would ask such a question?
They think it has a social use, as a means to account for their wealth
Your’re right, I would!
Is there a video?
And ‘Babylon to Bitcoin and back’ has a certain ring. Is that the next book?
No video
This was entirely impromptu in my office – and a privilege to take part in
Oh please make a vid…we have a FB page called ‘Labour versus Conservatives’ purely on the economy as we all know the importance of persuading voters that there really is another way.
I often post your stuff on there (be good if you could join) and the argument on MMT goes on and some of our members don’t understand it and are confused about which economic path Labour should be following and how that differs from the one it is following! Never mind the Tory’s
We need vids like this from sources we trust and who knows the grass roots might start to get a handle on basic economics which many really don’t understand and push the message upwards. Also we need ammo for the doorstep. Many voters also don’t understand how an alternative economy might work so believe Tory lies, as they have battered their message home so often that ‘Labour is not to be trusted with the economy’ (as they themselves ruin it!)
I worry that Labour are now running scared and talking the same language just sounding like they are going to ameliorate the same system rather than radically change it. I think John McDonell might be scared people won’t understand the concepts if they start to talk a different language. However, I am afraid that if they don’t people won’t see how we can afford all the manifesto pledges we are promising. If we don’t want the Tories in for ever, we need to start explaining the economy in a totally different way and QUICKLY. There has to be a simple way of doing this surely. If the Tories can paint a picture of the economy being like a ‘household debt’ and ‘passing debt on to your children’ rubbish surely we can and must find a way to show this for the nonsense that it is!
So what questions do you want answered?
I have someone who has offered to produce videos with me
The trouble is I am finite and have a day job…..
Anya-Nicola,
there’s a tremendous amount of stuff on Utube. I keep finding new stuff following links on this blog.
If you want material to inform and open up discussions along positive lines I’d suggest:
Noam Chomsky, Yanis Varoufakis, Mark Blyth, Stephanie Kelton….just for starters. There’s enough material to keep you going for months and every search opens up new avenues when the software knows what you are looking for. Not to mention all these people are still alive and producing new material in a constant steady stream.
You can post it on your group Facebook page (not that everyone will bother to watch it ) or you could use it at meetings, if you’ve got access to a video projector and have a live discussion.
It’s all there and it’s all free. And the more you watch it and listen to it the more it makes sense.
Then when you run into the questions you can’t find answers to you see if you can catch out Prof Murphy. 🙂 Good luck with that 🙂
🙂
The world was actually quite advanced in 1971 and I’m sure that the post-war people had created some new money between 1945 and 1971 whether they had backed it with gold or not.
Bretton Woods was not ideal but it wasn’t all that bad and it would have been better if Keynes had prevailed over Harry Dexter White. Nonetheless the Bretton Woods period was the only one that ever gave us a combination of low inflation and full employment. In fact it was the only one that ever gave us full employment. It was also a period where Keynesian economics was in the ascendant and we often tend to celebrate it for those reasons.
The point here is that the best of the gains that have been realised since 1945 did not come to fruition under a fiat currency system. They came about under the Bretton Woods gold standard. If we start talking up the economic advances that have been made since then we will be singing the praises of neo-liberalism.
At any rate things were different back then. Banks were regulated and so were exchange rates. Having said all that I have no doubt that a fiat currency system is preferable and has great potential for improving society. Its just that the potential has yet to be realised.
BTW I am not a great fan of overpopulation. Its bad for the planet. I would however note that rapid population growth predates the current era of fiat currency.
“…BTW I am not a great fan of overpopulation. Its bad for the planet. I would however note that rapid population growth predates the current era of fiat currency…”
It is widely believed that the most reliable way to reduce the birthrate is to increase the affluence of a population. A number of factors influence that result, but collectively they seem to work.
Global scale warfare doesn’t seem to do it (although the next one could).
PS I’m pretending I didn’t misread that at first viewing a s ‘overcopulation’. 🙂