Vox Day is having the same kind of problem with Robert Wenzel and the Economic Policy Journal that I had just about one year ago: it appears that Wenzel and his troop are fundamentally confused about the nature of money, which is why they have been so consistently wrong in anticipating “inflation” due to “money printing by the Fed”, as if currency was the only, or indeed even the primary, form of money.
I think the questions involved are just too abstract for most people, even most very bright people. Money is such a tangible, useful mundane and everyday thing it’s hard to believe that understanding its roots and origins is an intellectual exercise comparable to medieval metaphysics.
And yet this is true. Read this if you don’t believe me (pdf.).
I was looking at that pdf article in connection with some correspondence I was having with Steve Keen – also on the blogroll – who I had read somewhere was a “chartalist“, which is a branch of economics that, well….I don’t know. I mean wikipedia has a description, but I’m not quite sure what it means and I don’t know if anyone else is either.
What I do know is that from what I have seen the chartalist ideas of the origin of money and the government’s role in monetary matters is useful and interesting but, I think, a bit off. It’s good to point out that the nature of money and the nature of government are related, perhaps inseparable. But to identify that relationship is not to explain it or understand it, and this is where chartalists get very close to the issue at hand while very confused people like Robert Wenzel miss the mark completely and trail off into an error filled abyss from which they appear unable to escape.
For my part I’ve discussed money in this metaphysical sense quite a bit on the blog, such as here and here and here. But the best description of the nature of money and the government’s relationship with it and to it is this:
Now the law, as it happens, has a lot to say about money and pretty much always has, although nature herself serves up gold as a medium of exchange and a store of value, and no one had to pass a law for this. It can be discerned by each individual for himself. And it was, from long ago.
Where, then, does the positive, written law of civilization come in on money matters?
When trade and commerce flourish – as they do in civilization as opposed to primitive tribes, for example - people trade freely with gold or other common media of exchange. The law making authority – government – merely defines usable and universally understood quantities and then implements those definitions through bureaus of “weights and measures”. It says, for example, that a “dollar” is defined as 1/20th of an ounce of gold. And then someone brings their gold to the government bureau which can measure out an ounce and stamp it into a $20 coin. And this in fact is what historically happened. You didn’t have to have weight scales at every meat counter.
Then the dollar is divided into more useful quantities: the half-dollar; the quarter, dime, nickel and penny. The penny – 1/100th of a dollar – was and remains the smallest denomination of the currency. People were, of course, free to deal in even smaller quantities if they so wished. But this was the smallest the government was willing to go, for entirely practical reasons. There is no moral objection as such to ever smaller subdivisions of the dollar, but there are practical objections. Imagine if everything was haggled over to fractions of a penny. Trade would basically come to a halt.
It would not be going too far to say that this public service – defining a monetary unit of account and assuring its integrity through bureaus of weights and measures so that people can deal with each other justly and efficiently in commerce – is the very first duty of government. It is also a paradigm of what the government can do with the law, and do well (which is to say effectively) and also of good faith, honesty and integrity. It is the establishment of a clear and readily understood convention that applies to all equally, and favors no one. Just what every law should be, and really what every true law must be – and is.
To the extent the government departs from this important, basic and easily understood function in money matters it has become corrupt, then, in the most fundamental way – with regard to its first and foremost duty. There can be no doubt about this and no alternative conclusion. A government that does not – or worse, refuses to – establish and define its monetary unit of account is a fraud. Nothing about the law, government or civilization itself could be more certain.
The problem with that quote, though, is that I wrote it. It is not a chartalist, or monetarist, or Keynesian, or Austrian, or any other kind of economics school of thought monetary theory or idea. It appears to be unique to me, although I would hasten to add that it is no more than a few baby steps from the understanding imparted to me quite a few years ago by an economics professor named Richard Timberlake. But it’s not a “Timberlake-ian” idea either. I haven’t talked to Antal Fekete about it, but he’s another one of those economists out there who are more or less sui generis, yet this isn’t anything he maintains, either. There’s a lawyer who dabbles in this area as well named Edwin Vieira. He has an impressive resume that includes Harvard this and that, but I don’t think he has broken down the ideas quite this way, either.
Yet for all that, and no matter how alone I may be in my understanding of the nature and origins of money, I’m forced to conclude that I am the only one who has it right. I have no idea why this should be the case, but the scenario I outlined above in that quote is one of those things that seems to be intuitively obvious and self-evident once you achieve a certain minimal level of knowledge in the area.
Why people as smart as Vox Day are missing this probably has something to do with the fact that almost everyone with a keen interest in the subject – with the exception of Mr. Vieira – is a non-lawyer. And when you get to the bottom of economics and begin examining the very foundations of it – the nature of money – you find that money in that sense is always a function of the law.
The chartalists have that much right. But going on from there, I seem to be all by myself again. That doesn’t make me wrong, though sometimes I wish I were.