Money is not a commodity any longer, it has become an intangible accounting entry. This is called fiat money. This changes everything. Inexplicably, this conversation is a fictional story. How can it be that such a historic event, comparable to the acceptance of the Copernican model in physics, was not analyzed by any communist party in the world? This is a mystery for me, but the truth is, that the basis on which Marx builds his whole work, namely gold standard-based money, ceased to exist on August 15 th , the day when fiat money was adopted.
From Gold To Euro On Monetary Theory And The History Of Currency Systems 1st Edition
For Marx, money based on the gold standard is a premise. Gold or silver is therefore money. This means that the accumulation of gold equals saving money, and that the value of the money the state issues varies depending on the quantity of gold it represents. That is how in the end the spending capacity of both the state and the private sector is determined by the amount of money saved, whether as paper money or as gold.
If, in this gold standard-based system, private ownership of the means of production is allowed, then the capitalist form of production becomes a method to accumulate money in the hands of one social class the one that owns the means of production while the rest of society receives a subsistence wage in exchange for generating goods and services that allow the bourgeoisie to improve its level of savings in a kind of money that bases its value on its scarcity.
This reality, in which money-gold is scarce, leads Marx to the conclusion that only the direct ownership of the means of production can decide the distribution of wealth in the economy. Either private ownership of the means of production is abolished, or the private ownership of the means of production will always tend to accumulate the money in the hands of the bourgeoisie, and to augment misery among the working class.
The analysis of the change from the gold standard to fiat money has recently been made by the Modern Monetary Theory MMT. Ever since August 15 th , states have created money out of thin air by typing on keyboards at the Central Banks. Those keystrokes make the balance of accounts in private banks go up when a person or company receives a payment, and they make those balances go down when a person or company pays taxes to the state.
In this way, money stops being a commodity and becomes a mere accounting entry Wray Furthermore, the capacity of the state to spend stops being dependent on the collection of taxes or on the issuing of debt Mosler However, taxes keep on being necessary, but not to finance the current spending of the state, but to accomplish a double function: they give value to money and they control aggregate demand consumption capacity.
To all this, we have to add that non-convertibility meant the emergence of floating exchange rates. They prevented private speculation in the international exchange markets from being able to destabilize the exchange rates of the different currencies. This is how the availability of real resources in the economy became the only limitation on the spending capacity of the states. Public deficits are no more than an accounting entry on the national balance sheet. This law states:. If total spending is allowed to go above this there will be inflation, and if it is allowed to go below this there will be unemployment.
The government can increase total spending by spending more itself or by reducing taxes so that taxpayers have more money left to spend. It can reduce total spending by spending less itself or by raising taxes so that taxpayers have less money left to spend. MMT proposes to reach this point by job guarantees or transitional jobs programs.
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In this job in the public sector, the worker will receive the minimum wage, which will allow him to live with dignity until he finds a job that offers better conditions in the private sector. A society without unemployment or poverty, in which everybody has a decent job either in the private sector, or in the public sector which allows him to fulfil all his basic needs and coordinate his working and private life because of reasonable time schedules.
A society in which public services, education and health access are of the highest quality, and in which the level of prices remains stable. I use the adjective, fiat , in order to emphasize the differences between this kind of socialism and traditional socialism.
Fiat Money and the Euro Crisis | Mises Institute
As has already been explained in the second section of this article, such direct ownership of the means of production is an essential condition if we want to control the economy in a collective way inside of the gold standard. What happened when fiat money was introduced? As we have seen, the state that issues its own money is no longer dependent on any kind of restriction in spending its own money. In this scenario, the private sector can only save in the national currency if the state goes into public deficit, in other words, if the state decides to spend more than it collects through taxes.
This could stay in private hands, because the level of accumulation in terms of national currency in hands of the owners of the means of production is determined by the state through its fiscal policy. Therefore, the administration of the means of production and the distribution of the goods is done by the state, but in an indirect way. This means that the owners of the means of production can only appropriate the amount of money that the state allows them through the collection of taxes, and this also means that the state can spend as much as it considers necessary, regardless of the level of money accumulation in the hands of the owners of the means of production money is no longer a scarce commodity.
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At the same time, MMT shows us that when implementing full employment policies by the state we only have to worry about inflation. Therefore, the level of government spending must bring the economy to its Lerner point, but this point should not be overstepped. If we introduced fiat socialism along these lines, we could make the following experiment: only one person could know what the level of public deficit in the economy is.
After some years have passed, the person who kept track of the public deficit would reveal us his records. As a consequence, a key premise for introducing fiat socialism would be the immediate exit from the Eurozone and the recovery of monetary sovereignty Medina Miltimore in order to introduce the job guarantee programs that Izquierda Unida proposed before its agreement with Podemos. This level of deficit is incompatible with full employment and welfare policies in Spain.
Wray, L. A excellent article. In , Alan Greenspan told Paul Ryan:"there's nothing to prevent the federal government creating as much money as it wants. He said no. It was printed:. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.
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It's much more akin to printing money than it is to borrowing. And we need to do that, because our economy is very weak and inflation is very low," Bernanke says. There is a video of Bernanke saying this here , the important bit comes in at the 8-minute mark. These admissions — that creating money out of thin air is not by itself dangerous and may even be advantageous — are the key principles to understanding Modern Monetary Theory.
Traditionally, economists understand money creation or "money printing" as being inherently bad. Reserve Bank Of Zimbabwe.
In fact, MMT advocates observe, new money creation is a very common event and hyperinflation is a relatively rare event. The deficit implies that the government has spent a sum vastly greater than the entire value of the Japanese economy, but has not been able to take in enough tax revenue to cover that expenditure, and is thus floating it with debt. The inflation rate in Japan is currently That's negative inflation.
Japan isn't alone. Many economists predicted that the Fed's ballooning cash creation would beggar the dollar. But it didn't happen. In Europe, Sweden, Denmark, Switzerland, and the 19 countries in the euro currency area, imposed negative interest rates to flush money out of bank accounts, in hopes of generating inflation.
But inflation never happened.
berlinbootstouren.de/scripts/342/moc-whatsapp-hacken-met.php So MMT theorists argue that mere money creation cannot be the cause of inflation. It must be something else. In Macroeconomics classes everyone learns about the Weimar Republic, in which the German government, in defeat after World War 1, printed money to pay its bills. Hyperinflation set in and people needed wheelbarrows full of cash just to buy loaves of bread.
Similarly, when the Zimbabwe economy collapsed in the late s-mid s, Robert Mugabe's regime printed ever-more Zimbabwean dollars in response. Mugabe forced white farmers off their land and gave their farms to the soldiers who had fought to gain Zimbabwe's independence from Britain. The problem was these soldiers were not very good at farming. Estimates vary, but Zimbabwe went from being the food-exporting "bread-basket of Africa" to a nation that was unable to feed itself in a matter of months.
The Weimar Republic was in a similar albeit more complicated situation. The war had destroyed Germany's productive capacity. But the Allies were insisting it pay reparations far in excess of the ability of the shattered German economy to pay. So the government printed money. When a lack of supply met an excess demand from cash, then hyperinflation was the result. It is the lack of goods — or labour, or capacity — that triggers inflation, MMT argues.