680: A Brief Explanation of Modern Monetary Theory

Money exists.

This much is not generally in question. There is a general understanding about what determines the value of things that exist in the general economy. If there is a market for cookies and there are only three cookies in existence, the value of those cookies will be very high. If there are ninety-nine million cookies the value of those cookies will decrease.

This example works for cars, cheese, pineapples and matches.

It’s called the law of supply and demand. Lots of people would think that it would also apply to money. But, of course, these people would be wrong.

Anyone who believes that money follows the basic economic laws which apply to everything else is clearly unfamiliar with modern monetary theory. Modern monetary theory recognizes that the law of supply and demand does not apply to money, because money comes from the government and things which come from the government need not adhere to basic economic laws.

In fact, most economic problems result from a deficiency in the amount of currency in circulation. If more currency is introduced into circulation it will help poor people in particular, because there will just be more money to go around. Since the government is responsible for money the government is the entity best equipped to spread the money around. When the money is properly distributed the economic problems will be solved.

Even though money doesn’t adhere to basic economic principles, printing a lot of money can still lead to inflation, even though this isn’t true and the amount of money in circulation has absolutely nothing to do with the value of that money. If inflation does occur, we have to keep in mind that the government is responsible for money, so the government can just decided that there shouldn’t be inflation, and that will take care of the problem, even though it’s not really a problem.

Modern monetary theory lets us do really cool things like minting trillion dollars coins out of platinum in order to make it look like the government has less debt than it actually does. This is totally legitimate, because the government creates the money anyway, so it can do whatever it wants to do with it. Kind of like a carpenter who builds a house reserves the right to burn it down anytime he feels like it, because origination is nine tenths of the law.

Simplistically minded people would be forgiven for thinking that money should follow the same economics rules as everything else. The truth is not only surprising, but also convenient as it allows for government spending to be increased exponentially with no fear of potential negative consequences.

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