The Millennials’ Money izeneko bideoaz, hiru iruzkin

Sarrera, in J. D. Alt (arkitektoa) eta DTM:

Bideoa: (


Adam Sawyer-ek egindako hiru iruzkin:

(i) Modelo errealista bat


Adam Sawyer says:

January 22 2018

DW –

Honestly I cannot believe that someone genuinely can’t be bothered to watch more than the first few minutes of something and yet can be bothered to read the comments and can be bothered to write a reply to one. Couldn’t you have skipped ahead in the video to allay your initial concerns?

So, while I find it difficult to believe you aren’t trolling I shall reply anyway out of politeness and for the sake of any actual progressives put off by the start of the video:

1) firstly the video illustrates the common perception most people have of our existing money system and economy,

2) secondly the video explains how that common conception of the economy is actually inaccurate and instead builds a more realistic model of how it all actually works.

The video does a nice job of clearly communicating the reality of our money system. It does not cover everything in full detail and it is specifically for the US system. However, for anyone, like me, who has been struggling to put together a 30min presentation for their own local group of activists (from whatever progressive group): the video provides a great outline on which to build a solid presentation.

Furthermore the author has licensed the power point presentation under Creative Commons and encourages others to repurpose it for their own specific needs as long as they likewise publish under CC.

I think it’s fantastic stuff and many thanks to Richard for bringing it to our attention.

I’d also like to reiterate Richard’s point about the public sector and private sector working together. Our money system is brilliant because it provides the means for both private and public projects to be agreed to and managed with a single, simple but infinitely flexible money system.

Where big national or regional level projects are the best way to deliver infrastructure/services the public sector can take the lead under democratic control and public ownership but individuals and local businesses can be hired to assist in delivery using their local expertise.

Where market based competition can deliver ever greater efficiency and quality the private banks can create the money required while the public sector provides regulation to ensure fair-play and a safety net to ensure entrepreneurs don’t fear failure so much that they never take any risks.

At its heart it is a wonderful system that could so easily deliver both fair and equitable social outcomes and an ecologically sustainable economy. The fact we so badly misuse such a great system is what we need to address and that’s precisely why fully understanding the true nature of the system in question is so important. All the progressive ideas in the world will be useless while ever the majority fail to grasp reality at the same time that a selfish minority understand it only too well. It us in fact their understanding combined with their selfishness that gives that minority their overwhelming wealth and power.

(ii) Diruaren sormenaz


Adam Sawyer says:

January 21 2018

Ian Stevenson,

The point is the national debt isn’t money leant to the government so that it can then spend it. The government can always spend at will because it is the currency issuer. In what way does an entity that can create something at will benefit by collecting up the thing it can create at will? It can’t be that it needs to store it for later or needs to get some now because it can always create more at will. Warren Mosler likens the currency issuing government to the referee of a sports game. The referee neither has points nor doesn’t have points – he simply creates points when he deems that one or other team deserves to be awarded points. A football referee doesn’t need to borrow goals before the season starts nor does the FA have to tax goals from the players before they can award them in future games and there is not a growing debt of goals that will eventually have to be paid back – that’s obviously absurd! It is precisely the same with a fiat currency issuing government and yet our understanding is so muddled that we cannot see how absurd the idea of “the national debt” really is.

The national debt is just money temporarily taken out of circulation for a number of reasons including providing a safe store of value and a steady income for certain groups of people (some deserving and some less so). It is never to enable the government to spend but it might sometimes seem that way…

If and only if the economy is running at full capacity and the government has a democratically mandated policy that requires it to commandeer more real resources then the removal of money from circulation via the sale of gilts could be said to enable the government to spend without causing inflation. MMTers call it “creating fiscal space” – spending power is removed from one part of the economy to allow the reallocation of real resources to another part of the economy. However issuing bonds is not the only way in which inflation can be avoided and inflation doesn’t necessarily have to be avoided.

The point made by MMT, this video and Richard Murphy, is that if we understand the reality of how our money system actually works then we can all join in a rational debate about how we spend our time and real resources on collective projects and how much time and real resources we allow individuals and businesses to do with as they individually see fit. Then truly democratic decisions could be made.

The problem we currently have is that deliberately obscurantist ideas like “the national debt”, “loanable funds” and “fractional reserve banking” prevent the whole population understanding enough to meaningfully engage in the debate they should be having about real priorities for real resources. Therefore the “democratic decisions” we make are not based on the reality of our situation and thus the public give consent to policies without understanding the range of options available nor the likely outcomes of different policies. If informed consent to enact policies isn’t ever really given then can a government truly be said to be acting democratically?

The question you pose in your last paragraph is a case in point of this type of confusion. The answer to what I assume is your question is that, as Richard Murphy says, fractional reserve banking isn’t real. There are no loanable funds. Our deposits are not leant out. That’s why you never get told that you cannot spend right now because someone else has been leant the money in your account and you’ll have to wait till they pay it back, slowly over the next 25 years!

What actually happens is all private bank lending creates money ex nihilo in a similar fashion (keystrokes producing entries in a spreadsheet) as the Bank of England creates money out of thin air to enable the government to spend. Don’t take my word for it though, try this from the Bank of England back in 2014:

As another commentator has mentioned earlier, the video leaves the detail of private bank money creation out to avoid undue confusion to newbies. However, it is really pretty simple since it follows similar principles to the process of government money creation by the Bank of England or the Fed in USA. The big difference is that instead of a government tax-redemption-IOU being created and then a changeable amount of tax being imposed at some later date where tax may be greater, equal-to or less-than the number of tax-redemption-IOUs created by the initial government spending private-IOUs are created alongside an exactly equal entry on the other side of the bank’s balance sheet at the moment the loan is created along with a contract stipulating the time period within which the loan must be repaid (and thus the IOU destroyed). In that sense money created privately has a built in self-destruct timer ticking from the moment the loan agreement is signed.

That is why MMTers say “only the government’s central bank can create net savings in the private sector” – because only money created by government spending is free of this self destruct mechanism and so can lead to aggregate savings once all private debts are taken into account. In reality private loans sometimes do go bad and never get repaid so some privately created money escapes its designed destruction date but most gets paid back and thus destroyed as scheduled. Taxes will get the rest in the end anyway.

Another source of confusion is that private banks creating money out of thin air seems to deny the stated fact that “the government is the currency issuer”. In reality private banks are not as private as their “owners” would like us to believe. They all operate with a government charter, are tied into the government’s central banking system and their deposits are guaranteed by the government. Private banks are actually just small local extensions of the government controlled money system which provide local on-the-ground knowledge to competently (2008 aside!) create the many small sums of money required by individuals and businesses for their own private plans while government spending enables larger public projects to be put into actions. One simple and flexible money system allowing the seamless integration of private and public projects using the same finite time and resources – absolutely brilliant and probably the most elegant, robust and useful social construct our species has yet developed.

I don’t know if that’ll make sense (or indeed if I actually got it all right!) but basically all the money at all stages is created out of thin air! That is the nature of fiat currencies – they are counterintuitive and quite different to the mythical money system we grow up believing in. That is of course very convenient for the lucky few who do understand the reality and also have access to the levers of control over public or private money creation

(iii) Eboluzioaz


Adam Sawyer says:

January 22 2018 at 12:22 pm

Peter May –

I believe you are correct when you say it is problematic when people don’t understand that taxes destroy money. People find it difficult partly because it means that taxes don’t pay for anything and partly because it negates their belief that there is a continuous circulation of money. The perceived cyclical nature of our economy is strongly believed because we are used to the cyclical nature of the seasons and thus life itself. Also for most of us in employment our work is repetitive and frequently cyclical in nature, at least for years at a time. However I don’t think our economy in aggregate over decades is anything like the truly cyclical natural systems we are used to.

The reality is confusing because money does circulate for a bit before it gets destroyed by bank-loan-repayments or tax-payments. However I think that it is truer over the long term to say that there is no cycle at all. What there actually is are a series of decisions to invest in various activities. After the completion of each activity the economic system has been partially transformed and then the next activity starts from that newly transformed economic base. It is essential to have a money system that allows for this linear project based approach and that’s why we have money created at one moment and destroyed at another before new money is created to do something else later.

You see linear progression of natural systems only over extremely long periods of time so it is difficult to notice. For example evolution wasn’t an immediately obvious phenomena because it takes tens of thousands of years to even start to make noticeable changes to a species’ morphology. Nevertheless the difference between the life on Earth 1 billion years ago and the life now is obviously the result of a long-term linear process rather than just a cyclical pattern repeating ad-infinitum, though such cycles certainly have been occuring simultaneously with the long-term linear process of evolution.

The same could be said of galactic evolution and the process of element generation in repeated cycles of star formation and destruction. A linear process arises from a cyclical process. It is a common theme in our universe.

Perhaps highlighting the dramatic economic/infrastructure changes that have occurred over the last 250 years would draw people’s attention to this additional non-cyclical nature?

We aren’t just cycling existing money around as we do the same thing our grandparents did 50 years ago. Instead we’re creating vastly greater quantities of money to facilitate completely different projects using new technology to serve three times the number of people as our grandparents’ economy was capable of supporting. Imagine we had restricted ourselves to the supply of money available in 1945, what would that look like? Well we’d have had a massively deflationary currency and economic growth and technological innovation would have ground to a halt. There could have been people sitting around willing and capable of doing useful stuff, there would have been mountains of unexploited real resources. In the end 2018 would look exactly the same as 1945! We. Would not have had sustained economic growth and so would not have been able to support population growth. Many of us who now enjoy being alive would never have been born. That’s the power of fiat currency!

Once people are open to the idea of non-cyclical economic activity they may be more comfortable with the true nature of money: as a social construct that enables a variety of methods
of collective and individual decision making in extremely large groups.

Right now most people are blinded to the reality of how difficult it actually is to make decisions in such vast groups spread over such great distances. Ironically the reason we’re blind to that difficulty is because our money-system and associated political-system makes such a good job of it! As bad as things may seem they could easily be so much worse.

There’s a reason why the stone-age was so long: it took a very long time (in human terms if not in geological terms) to evolve the brain power, ideas and customs required to safely organise thousands of people rather than merely hundreds of people.

The ability to self-organise in groups of a hundred or so is an inherent human ability we’re all born with. We are instinctively capable of knowing the individuals and keeping track of all the interpersonal relationships in a group of a few hundred people we’ve known all our lives. That’s because our ancestors lived that way for hundreds of thousands of years and the species that came before them lived similar lifestyles for millions of years. Over those millions of years evolution selected for the fantastic cognitive abilities capable of performing such a feat of social networking as we now take for granted any ten year old at primary school can manage with zero effort.

So I think we’re blind to some aspects of our reality but only because we rarely look in the right places and frequently fail to approach what we look at in a receptive state of mind. Finding ways to open people’s eyes to these additional realities is key to opening their minds to reconsidering what they think they know for sure.

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