Robert Hockett

It has been said that Man invented time, and now he runs by it. So with money. Man invented it only recently, and the patches and kludges he has attached to it over the centuries have made it into his master instead of his servant. The good news is, once we recognize this, we can take full advantage of it. Getting people to accept the truth is the real challenge.

Robert Hockett and Aaron James have written a very clear, easy to read and even upbeat book explaining why things are the way they are, and how we’re missing out on enjoying a prosperous life because of it. In their Money From Nothing, they show our worries to be totally self-inflicted, avoidable and even laughable. The money available is all but unlimited, and the USA doesn’t even see it.

Money is a kind of shorthand for managing obligations. Before money, everyone had to keep track of what they did for others and others did for them. Money allowed them discharge those obligations. It also allowed them to optimize their time and production, by say, hiring expert artisans who knew what they were doing instead of just doing everything themselves. So money is a huge lever of productivity. Without it, society would slow to a crawl.

But along the way, the authors say, misconceptions got entangled with bad ideas. It became the law that money had to be backed by the same value amount of gold, a yellow metal that is unfortunately rare where money was most prominent. This meant very little money was in circulation and could not be increased unless more gold was discovered. Growth, wealth accumulation and progress were next to zero. Adding silver to the mix didn’t help much. Looked at dispassionately, this is an absurd way to run an economy. White and yellow metal is a bizarre method of monetizing when looked at from a distance; it makes no sense except in a Gulliver’s Travels world of odd societies (to laugh at).

It reminds me of a story by the justifiably legendary Art Buchwald, a columnist from the Kennedy era. He wrote that to win the Cold War, the USA should go off the gold standard and adopt the cactus standard. The USA has endless cactus, so it could be rich. The Russians would have to come over and buy up all the cacti they could, paying with boatloads of now worthless gold. Then the USA would say it changed its mind and would revert to the gold standard, leaving Russia with a bunch of worthless cacti. That’s how silly the monetary system looks from the outside.

The current alternative is fiat money, which the whole world now uses to a greater or lesser extent. Gold is not the foundation, though a remarkable number of lawmakers push for its return. This is absolutely and unfortunately typical. Electeds are generally not knowledgeable about money, though their positions on it are set in concrete. They might profess to not be scientists or doctors, yet somehow, they are all economics experts, holding the country back from prosperity. Never mind trade deficits, fiscal deficits or arms sales. The USA has the unused tools to be successful and prosperous for all its citizens, right now.

As we have all seen now, when the Fed issues new money, it does not cause a rise taxes or inflation. In the 2008 Financial Crisis, it “printed” seven to eight trillion dollars without harming the budget or debasing the currency. The dollar just grew stronger and is now stronger than ever. Similarly, the Pandemic expansion of the Fed’s balance sheet is not diluting the currency or causing the national debt to be unbearable. No one’s grandchildren will inherit new debt because of it.

“When a dollar is spent, it becomes a liability for the government, and someone else’s asset. This is not policy; it is algebra,” the authors say. Dollar bills are public debt instruments, so by definition, the country is always in debt. It could only have no external debt if there were no dollars outstanding. It is difficult to find politicians who would understand or agree. Yet it is basic math and accounting.

Money is a zero sum game. On every balance sheet, assets on the left side are matched by liabilities on the right side of the sheet. It’s the same money, just called two different things. They cancel each other. The authors give the wonderful example the National Debt Clocks, which purport to show how much every American family owes – to some unnamed someone. But all you have to do it change the label from Debt to Private Wealth, and the truth becomes apparent.

Money is just a tool to increase wealth; it is not wealth itself. America is the richest country precisely because it has been running up this debt/wealth and increasing its standard of living. That it is able to do that has not yet been recognized, but clearly, it’s something the USA can do for its citizens. And the sooner the politicians can be made to understand this, the sooner Americans can have stress-free financial security.

The whole self-inflicted pain of the balanced budget is pointless, the authors say. “Balanced budget religion is a big part of why we are where we are, and why our future might still be much worse than it has to be.” Instead of focusing on how money can keep increasing the standard of living, Americans fret over a federal deficit that created the wealth in the first place.

Another specious argument is how the government spends the money: “Guns and butter are paid for in exactly the same way, with payments authorized by the Fed.” There is no need to use different dollars, and no need to choose between them. There is no need to delay action, and every reason to do what is needed, today. Because that’ the real way money works.

When Bill Clinton pulled off a balanced budget in the 1990s, he set up the country for a fall. The economy needs deficit spending to expand. Without the feds in various markets, they shrivel and become inefficient. Taxes that don’t get spent again by the government drain potential from the economy. For all the bleatings about balancing budgets and cutting back on services, the exact opposite is how money works.

As should be obvious, the authors point out the Fed is constantly creating money. It cannot wait for income taxes to hit in April. If there is a contract for a new aircraft carrier, the Fed transfers dollars to the contractor’s account, regardless of the time of year or money at the Treasury Department. That’s how it does everything: a few keystrokes on a computer result in a deposit in someone’s bank account.

Which leads to the ever- pressing thought: why can’t every American have an account at the Central Bank, and why can’t it deposit say a thousand dollars into every account every month? The Fed does it with major banks and federal contractors. Why not for everyone?

Universal basic income is doable in a country like the USA because it issues its own currency, and it has the ability to ensure the money goes toward increased productivity rather than fostering inflation (not to mention the fact that in field trials, it proves to be not just self-financing but profitable). In this scenario, America is wasting a giant opportunity to prove that membership has its privileges. Where many other countries using the dollar or the euro have no such potential because they don’t control their own currency, the USA could offer its citizens the money they are constantly short of, which causes unnecessary stress, poverty, and the accompanying diseases of crime, illness and suicide.

Once Americans understand all this, even crypto currencies can be seen as viable. A crypto operated by the Fed would work, hold its value and add all kinds of security to owners. Its parallels to private bank notes are self-evident: until the Civil War, American money was in private bank notes, signed by local bank officers and only as valuable as confidence in the bank. A Fed-backed crypto could replace the dollar.

When the US government finally understands how its currency works, the authors say there will be four huge benefits: income, work, wealth and leisure. Income is the universal basic income. Work is a guaranteed job, as the government hires the unemployed to perform public services (such as implementing the Green New Deal) until they get hired elsewhere. Wealth is freedom from financial worry. Leisure is a shorter work week at full pay (as has been going on in western Europe for years now).

While the book is most accessible, the authors love to dress up the pages of the book with puzzling stylings: italics, capitals and quotation marks. It is never clear why they choose one over the other, but it seems most sentences require one or more of them to make them work better. This is a rollercoaster for the eyes, and imparts little information but much confusion, as to whether the reader is missing something by not seeing their significance (or lack thereof).

The essence of Money from Nothing is perspective: looking at currency for what it actually is (ie. not absolute, God-given, historically fixed, or even reliably construed). It is largely an explanation of MMT, Modern Monetary Theory, a burgeoning faction in economics. So it is being studied, refined and challenged by professionals, and sooner or later, will become mainstream. Unfortunately, in the USA it will likely be later – much later – causing unnecessary deprivation that amounts to punishment. The USA is leaving money on the table.

David Wineberg… (más)