Conservatives may talk a lot about gold, and yes, gold is very useful for things like tooth fillings, wedding rings, stereo connectors... It's valuable stuff with many commercial applications, but they are deceiving us with their main claim for gold's value.
When these conservative economic, banking, finance
lizards wizards speak of gold, they are usually referring to gold as a basis of the world's money. A sort of God particle of all economics.
At one time gold was considered to be the stuff of which money was made. It was essentially money, once it was formed into a standard coin. But gold was unwieldy, especially in large amounts, so paper money was brought in for convenience. However, there had to be gold in a government treasury in sufficient quantity to back up the amount of paper money issued. One had to trust the government that the gold existed and would be exchanged for the paper money upon demand. Conservatives, who tend not to trust people, were uneasy with this arrangement.
However, in 1971 the U.S. went off the gold standard and the U.S. began issuing currency not backed by gold, although there remains much gold in storage. Detractors refer to this process as "just printing money". The word "just" or "only" refers to a missing step--that of ascertaining that there is gold backup for the money being printed.
This non-gold-backed money is called fiat money, and with modern technology it is not limited to printed paper, but can also consist of electronic blips in computerized accounting systems.
We've used fiat money for 40 years, but some economists and their conservative followers still call for a return to the gold standard. But they never seem to address the fact that there is not enough gold in the world to back up all the financial needs of its people plus allow for all the industrial and decorative uses of gold.
So money has gradually evolved from commodity money (as in bartering, where the exchange is between two commodities) to representative or symbolic money (where paper bills symbolize stored gold) to fiat money (where there is no physical backup for the paper bills or electronic records).
The historical progression from bartering physical goods to dealing with increasing levels of abstraction in the use of money is analogous to the maturation of a child's brain from concrete thinking to abstract thinking. Those who cannot understand the nature of fiat money are behaving somewhat like the child who insists that he must have "his" nickel, which he can identify from its private marks, and will accept nothing else.
From psyched's book "Money as information"
It's easier for anyone, mentally mature or not, to deal with concrete, physical things rather than abstract concepts. That's one salient reason why the notion of money as a physical thing can persist. Especially in our TV age of images, it's difficult to represent abstract concepts without picturing concrete objects, such as a sack of coins to represent money or riches.
If something is physical, there can exist only a limited quantity of it in the world, and so it must be conserved lest we run out. If money is physical, we must be careful to keep it in the hands of deserving people. These are subconscious ideas generated by the conviction that money is physical.
Those with limited abstracting abilities or authoritarian orientations (read: Teapartiers?) will more easily latch onto the notion of withholding limited money from those deemed to be enemies.
Turning again to the financial leaders of the world, we can assume that they are generally above average in intellectual development, given the rigors of their professions. And yet we find that nearly uniformly these people are preaching a conservative money viewpoint. Why is this? Why do they hold a symbolic-money view when with their intimate acquaintance with finance they must be somehow aware of the fiat-money reality.
The answer to this puzzle is probably complex, but I want to suggest one line of thought: To rise to leadership level in such a field requires a degree of egoism and power-seeking that at least border on antisocial personality disorder. These people have access to the tools of money creation and could hardly help being aware of the abstract, contractual nature of money (money as a social contract). Yet they would have the world behave as if it functions on symbolic money.
We're being conned
To state it bluntly, you and I, John Q. Public, are being conned into believing that government budgets affecting our well-being, our rights as humans and citizens, must be trimmed and minimized and even eliminated because money is scarce. And at the same time these leaders know that they can essentially create their own money through shrewd dealings with opaque manipulative financial tools and have the political and financial power to legislate wealth and influence away from the middle and working classes and into a growing plutocracy. Money is not scarce for them, but they want everyone else to believe that money is so limited that we must practice austerity, and not surprisingly the austerity measures will be aimed at government programs other than those that buttress sources of plutocracy wealth.
These actions are consistent with antisocial personality disorder because they demonstrate lack of empathy for the many people adversely affected by them and because they benefit primarily the power-hungry perpetrators.
Another incidental but not unimportant observation is the strong connection between uncontrolled sex drive and the equally power-driven demand for wealth. This point was well-demonstrated in Charles Ferguson's documentary film "Inside job" as well as in recent news revelations. So we find that too often high-level economic decisions affecting many millions of people are being made by risk-taking, sex-crazed, egomaniacal, sometimes drug-using sociopaths. They would not appear to be suitable individuals for attending to the needs either of the huddled masses or of a generally stable nation.
Is fiat money, unlike gold-standard money, unlimited?
For a nation like the U.S., the ability of the federal government to create fiat money is theoretically unlimited. However, in actuality it has been limited by poorly considered actions of Congress. When the nation went off the stifling gold standard, Congress required that whenever the government spends money it must record a debt in its records, and a debt limit must be set. These are actions derived from the old gold standard that Congress could not move away from. These legislators who could not perceive the full meaning of the new fiat money era were afraid that the government would run out of the now-unused gold, and even required that the government borrow money from other nations to cover its deficit-spending.
The debt-issuance requirement Congress set up is crippling and anachronistic. Co-blogger Letsgetitdone notes the way out of this bind:
What Congress can do to end the debt ceiling crisis, other than raising the debt ceiling, is to allow the Executive to deficit spend Congressional appropriations without issuing any additional debt. Congress can do this at any time, and the Treasury will never have to issue debt instruments again in order to deficit spend.
It’s unreasonable to expect the present Congress to resolve this problem. We need to replace the present houses of Congress with progressive activists who can be persuaded of the value of Modern Monetary Theory (MMT). Folks in the Executive Branch will also need replacement or re-education. Most of the lowly Congressmen and Senators do not understand these concepts and merely take marching orders from their conservative benefactors, with the commands trickling down from high-level economists and financiers—a case of trickling-down that is actually, unfortunately effective. The present economic system serves the tricklers well, so they’re not eager to change it. MMT-er Warren Mosler had this to say about financiers:
I’ll be the first to say that the financial sector is, by and large, a total waste of human endeavor…
Even with the debt-issuance problem cleared up, the government has spending restrictions. Congress sets budgets for the various programs, which cannot be exceeded without further Congressional approval. However, in approving budgets, Congress would no longer have the false argument of debt ceilings to hold up.
False arguments are currently impeding the enactment of desperately needed programs to strengthen the economy, to put people back to work and to help those who cannot work. Conservatives opposed to fiat money and freer government spending will throw up the specter of inflation with increased government spending. But co-blogger maddogg explains:
The good news is that the federal government can create money at will. Which means that the federal budget is constrained by inflation, not revenue. Even better is that fixing these problems wouldn't be as highly inflationary as our congressional friends fear. The kind of inflation that is as large as they fear occurs when the government and private sector demand more than can be produced. But... the economy can afford to produce these things. We have enough teachers, construction workers, and houses to prevent demand exceeding supply. So even deficit spending to get these things would cause very little - if any - noticeable inflation. Even if it did rise a little, inflation is so low from our recent recession that we can afford to let it go up a bit without damaging our economy. What we need to do is stop worrying so much about our currency, and look at whether or not the resources needed to do something exists.
The cost of damage to the economy from failure to enact ameliorative programs is far greater than any cost of a small or even medium rise in inflation. And MMT experts Warren Mosler and Bill Mitchell shockingly note:
Warren Mosler: It’s probably fair to say that the losses from unemployment over the last two years just in terms of lost output are far higher than all the costs of all the wars the US has ever fought in its history combined. Seriously. That’s just gone forever. Plus the ongoing losses because it’s all path-dependent. Once you change your path, you’ve lost it, the growth rates have to be much higher to get back onto path.
Bill Mitchell: And millions and millions of dollars a day, every day, our countries are forgoing. Millions of dollars a day. Inflation will never go anywhere near that.
Warren Mosler: Well, if we have twenty percent unemployment, I know not everybody’s equally valuable, but it wouldn’t surprise me if the losses are twenty percent of GDP every year, or something close to it.
Finally, we must take account of another stumbling block in understanding fiat money: The federal budget is not like the household, business, local government or state government budgets we are more familiar with. The overseers of these budgets cannot create their own money. Only the federal government can do that, so these other budgets are dependent upon collecting revenue or income in order to function.
In my next diary I hope to consider what an ideal nation and economy would look like. We spend so much energy just trying to patch up holes in our system that it would be helpful to take an overview of what it is we're trying to create with our piecemeal efforts.
Much of this analysis is based on Modern Monetary Theory (MMT). It's a (relatively) new "Post-Keynesian" economic school of thought. If you're interested in learning more, please follow our group, Money and Public Purpose. Also, there is a small, but growing MMT wiki that is worth checking out.
Thank you for reading and reccing