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Assuming Money

By       Message Derryl Hermanutz     Permalink
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In a Sept.24 OpEdNews article by Robert Reich titled, "When Will Wall Street Call for More Federal Spending?"   http://www.opednews.com/articles/When-Will-Wall-Street-Call-by-Robert-Reich-110924-414.html , Robert wrote,

 

"If this keeps up, we'll have a showdown between establishment Republicans who understand what must be done -- and who will support substantially more federal spending in the short term in order to goose the economy -- and Tea Party zealots who refuse to face reality."

 

Some of the "Tea Party zealots" actually do see reality, but they evaluate it differently due to their Austrian School monetary perspective. Austrians believe gold is the only "real" money, the only "natural" (and thus inevitable) form of money. They think the creation of credit money based on a "fractional reserve" of gold bullion is scandalous, and the pure fiat dollar that we've had since 1971 is an unmitigated abomination.

 

In the Austrian worldview the money supply should be a fixed sum, growing only as fast as miners can dig up new gold. If the real economy also grows about as fast as the increase of gold/money, then overall there should be price stability.  Money would retain its purchasing power over time rather than being diluted by money supply "inflation".  

 

Austrians want to hold the value of money fixed, and the real economy must revolve doggedly around this moneycentric system for the benefit of the 5% of the population who have lots of money. Proponents of modern money theory (MMT), on the other hand, see the real economy as central, with an adjustable supply "fiat" money system being used to keep the economy functioning for the benefit of all of us 95% who do not already have a lifetime supply of money and who depend on working in a functioning economy to earn ongoing incomes.

 

In a zero sum money system like the Austrians' idealized gold bullion money, one person's monetary "profit" can only come at the expense of another person's monetary "loss".  There is by definition a "fixed supply" of bullion, and for one person to get more of it somebody else has to have less. Yet everyone agrees that we all need to "profit" from our work.  If a caveman "spends" 3000 calories per day hunting food, and only "earns" 2500 calories for his work, that "unprofitable" entrepreneur/worker is going to starve to death. We "need" to profit from our work.

 

Austrians, like classical economists before them and like neoclassical economists today, circumvent this zero sum arithmetic problem by conflating "goods values" with "money". The tailor converts $10 "worth of" cloth into $100 "worth of" coats, which "adds value" into the economic system. Then, ignoring the logical gap between an immaterial idea like "value", and a physical commodity like gold bullion, the classicals and Austrians assume that somehow the tailor is manufacturing not only "worth of" coats but is also somehow creating "money" to "buy" that added value.

 

Which is magical thinking, because in a gold money system ONLY miners and refiners and coin minters actually "produce" money. Everybody else produces other economic goods and services, but they produce exactly zero money. How the money is to get into the hands of buyers and sellers in the non money-producing sectors of the economy is always glossed over and never explained coherently by Austrians and neoclassicals, for the very good reason that such a system CANNOT be made to work in an economy that does all of its "trading" via the medium of "money".  

 

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I spent my working life as an independent small business owner/operator. My academic background is in philosophy and political economy. I began studying monetary systems and monetary history after the 1982 banking crash that was precipitated by (more...)
 

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