 So before we get into the topic for this afternoon is causes and consequences of modern monetary theory, before we get into that, I do like to just take a couple of minutes to express that it's always a pleasure to come and speak here at Mises University, especially as a former Mises University student myself. When I first started on faculty here, I'd talk about how short a time it was. Now I realize 19 years, many of you were probably in the process of being born while I was sitting in these seats. But it's not really short as it was before. That's the way time works, I suppose. But I also particularly like talking about monetary issues because the reason I became an economist is that I'd rather study money than have any. Right? So my wife doesn't like that joke. There's too much truth in it. But nonetheless, so I really do particularly enjoy giving these types of lectures. Now, again, before we get too deep into it, I think I want you to have a sense of caution because we should always have a sense of caution when we're hearing about a theory from someone who's a critic of that theory. Right? I don't necessarily have the right incentives to present it truly to you, especially when we're talking about a minority theory, like modern monetary theory, relatively few professional economists actually advocate this theory. Very easy. It would be very easy for me professionally to just misrepresent it to you. We can have a few laughs at how funny this is and ridiculous. And then we go and we just have it in a great week. Right? So I want you to be cautious and think about it. So I would certainly encourage you, if you have any doubts, and I hope that I've created at least some doubts, go and find out what the modern monetary theories themselves say. Right? So look up. People like Bill Mitchell, Warren Mosler, Randall Ray, Scott Fullwiler, Stephanie Kelton, are these kinds of names. You can find their writings. They're relatively free with these. You can find a very good talk, which is actually the basis for the first half of my talk here is from Randall Ray as modern monetary theory for beginners. Easy to find on YouTube. So go and check, right? Make sure that we're actually being fair. Now, certainly I'm not going to intentionally misrepresent it. I will try to be fair because I think that's the best way we have a discussion. And also, Austrians are also a minority view. I feel some sense of sympathy, right? I have seen the way that Paul Krugman treats Austrians. And it's not fairly, right? He doesn't try to understand the theory before he critiques it. So I do at least from that sense of empathy, right? I don't want to not act that way. So let's get started then into modern monetary theory. So first to clarify what modern monetary theory even is. So it's very tempting to say, well, it's modern monetary theory. Okay, it must be new. Well, it's not really new. Instead, it's a combination of two older theories that have been around for a good century at this point. And I don't think any modern monetary theorists would say what they're doing is totally new. Instead, what they're trying to describe, it's a theory or an explanation, right? Of how modern money works, specifically in economies where we have sovereign fiat currencies. So we're talking about countries like the United States, where we have the US dollar, this national currency that the government has a reasonable degree of control over or something like the British pound, very similar system, a national currency, the government has some relative degree of control over, Australian dollar similarly. So we're looking at these sovereign fiat currencies, and that's what we're trying to explain. So it's a theory of how modern money works in these particular economies. So getting that into the theory itself. I mentioned before it's a combination of some older theories. So we start with the credit theory of money. The credit theory of money was first introduced by Alfred Mitchell Innes, who's a British diplomat and also economist, and he presented this idea, it's really a story of the origin of money. So the idea of money in the credit theory is that money is really just debt, but seen from a different perspective, right? So what we would call money is really just credit instruments that are being passed around the economy. So just an example of how they imagine money working. So suppose that you do some work for me. I have four kids, maybe you come and watch my kids for a little bit, that kind of thing, right? So naturally I'm going to pay you in exchange for this, you're not doing it for free. Trust me, you would not do it for free if you knew my kids. You require some form of payment or compensation. So rather than hand you say a $5 bill, I'm just drastically underpaying you, but instead of handing you that $5 bill, I just write out an IOU, an Englehart IOU, $5, I hand you that, and then you can at some point later say, well, Professor, I want you to come weed my garden or something like that, and then you pay me with that IOU. Are you redeem that IOU later on? So that's the way they imagine money working. It comes into creation through these credit transactions and then it is redeemed later on. Now, it's also possible maybe you, the recipient of that IOU, say very sensibly, there's absolutely no kind of thing of value that Professor Englehart could provide me that's worth $5. This isn't worth much to me. So then maybe you can pass it off to somebody else and they give you something of value. So in that case, when they come to me with that IOU, then I will do whatever, provide whatever, go to service, we agree is acceptable for that kind of $5 value. So credit transactions create these credit instruments. The credit instruments can circulate then amongst other transactions and then they were redeemed right from whoever created the credit instruments to start with. Now historically, modern monetary theorists would point to several examples of this, one of their favorites being something called a tally stick. So tally stick was a piece of usually hickory wood, which notches were cut into to denote a certain amount of debt. So just one example of this that they like to point to, I was in the UK, tally sticks were the primary way that taxes were paid for a period of 700 years. Going back to Henry I, he established this tally stick system and it continued from his reign in the 12th century all the way down to 1826 and they got rid of this tally stick system for the payment of taxes. One story I enjoy about this is that they took all these old tally sticks a few years later in 1834. If all these old tax payment records, we don't really need anymore if these tally sticks just laying around in the basement of parliament, let's just burn them. You can burn wood, right? So we'll just throw them into the furnace here in the house of parliament, led to a chimney fire which burned down a big part of the building as they were abandoning this tally stick system. But so how did the system work? So we have a piece of wood, typically hickory, and then we cut notches in it. And there are actually very good records for the way that they cut these notches. Now there is a document called The Dialogue Concerning the Exchequer, originally written in Latin in the 12th century, I don't know Latin so I'm relying on Wikipedia to translate this accurately. So what it says is the manner of cutting is as follows. At the top of the tally, a cut is made, the thickness of the palm of a hand to represent a thousand pounds, then a hundred pounds by a cut, the breadth of a thumb, 20 pounds the breadth of a little finger, a single pound the width of a swollen barley corn, a shilling rather narrower, it's very precise. Then a penny is marked by a single cut without removing any wood. So we have this very clear system put in place for how we can read these tallies and know how much they're worth as we're paying taxes using these. Then after those cuts are made, the idea is this is going to be a record of this debt. So they would divide the stick in half lengthwise. So now I have two pieces with the same identical cuts that helps protect against somebody claiming that you owe more than you actually did. So we have to match these up when the debt is expunged. So the larger one, that was what the creditor would hold they called that the stock, the smaller one was held by the debtor that was called the foil. And then these tally sticks would circulate. And so, okay, I don't, so I'm the creditor in this particular transaction but I want to go buy something. So rather than paying you in money, I'll hand you this tally stick that is worth a certain amount of pounds that somebody else is going to pay you in the future. It's these credit instruments circulate as money. So that's just an example that modern monetary theorists like to point to how we have this credit instrument being created and then used as a medium of exchange or used as money. This also, they would point to say this is consistent with a lot of the anthropological evidence we have regarding early writing. So in the earliest writing we have are debt records. The suggests that debt, the concept of debt is literally prehistoric, that if it predates writing we knew what debt was so we then decided to start writing down what these things are. Meanwhile, modern monetary theorists would say if you think about the story that Dr. Klein told that the Minger would tell we have barter and then somebody gets an idea to use a medium of exchange and that's how money comes about. They suggest we don't actually have anthropological evidence of this free money barter economy. I wouldn't say they're right but that's what they would suggest. So that's one theory. So we start with the credit theory of money is where the money comes from. But then we add to that the state theory of money. The basic idea of the state theory of money this is presented again about 100 years ago by Georg Friedrich Knapp. Is that authorities have been involved with monetary systems as long as we know. It's been a very, very long period that government has been doing things to our money. I don't think Rothbard would deny that given this small book that he wrote with that title. So, but from the state theory of money perspective this is actually a necessity. We need to have somebody stepping in to unify the monetary system to make it so that all of these different debts are counted the same way so they are commensurable with each other. So according to modern monetary theorists on the basis of the state theory of money money then exists in a hierarchy. At the very top of that hierarchy is the government issued money. That is the debts of the government itself. Now the reason this is at the top is that you can then use these debts. So now the government owes you money while the government also wants you to pay taxes so you can use that credit instrument the government gave you at one point to pay those taxes off is the concept. Since everybody has to pay taxes everybody has to have access to this government money to be able to pay those taxes. This creates a widespread demand for this state money. Now underneath that state money which we would think of say in our system is physical currency bank reserves these types of things. Underneath that would be a second level of what they would call bank money. This would be money created by banks so things like demand deposits checking accounts and the like. So you look at the bank's balance sheet or the checking account deposit that is on the liability side it is a debt. So that would be another form of money in this case created by banks. Now this has a fairly privileged position as well not as good as straight up state money but typically demand deposits checking accounts and the like are immediately redeemable in state money. And so if you write me a check I can go to the bank and I can cash it. So you write me a check for $100 I go to the bank they give me $100 and $20 bills or what have you. So I can immediately change it into that state money which basically means the bank money is almost as good as state money. In fact so much so that say if I do my taxes at the end of the year to figure out how much do I underpay Uncle Sam which happens occasionally. They don't want me to send in $20 bills to pay off the difference they want me to write a check. So even the government is willing to accept bank money and payment of taxes. So that means that it's fairly high in this hierarchy of money. And then underneath all of this would be all of the other debt instruments things like corporate bonds, my mortgage and so on. So these personal and corporate debts would be at the lowest level which we might possibly see people exchange these things directly but that's typically much more rare. So these two combinations. So first, where does money come from? It's this credit process and then the state stepping in to create structure in that process and unifying is that everything is then in that state money being the unit of account. So everything is measured in dollars when we look at these credit instruments or in the United States or Australia or have you. Then they add to this looking at the modern monetary process. So this is the new innovation. So how do we take these two existing theories merge them together and look at how money actually works in these fiat economies. They like to use this phrase it's operational realities. We think about the operational realities of the fiat money system. And they really consider this to be a critique of the circular flow diagram that Dr. Newman presented earlier. All right, so the circular flow diagram traditionally has two sides to the economy. We have the firms on the one side and the consumers on the other and we have money flowing between the two. And so firms are paying workers which workers are also consumers. So money flows from the firm to the consumer and then money flows from the consumer right back to the firm when we buy products. And so money is flowing around circularly and the modern monetary theory steps in so wait a minute. How do the money get there in the first place? It has to come from somewhere. So what they suggest is the way that money gets created in our modern fiat based currencies is that government creates its money through spending. And in fact literally all spending by the government creates new money. And so it's not that first we collect taxes then we pay whatever expenses we have out of those taxes then we print the difference if we're going to spend more than that. That's not what happens according to modern monetary theory. Instead first we create a whole bunch of money we put it out into the system through spending and then we'll tax move it back out. And so it starts with the spending and then the taxation redeems they use this term redeems some of the money that was created. And then I point to historical examples like in colonial Virginia there was the term to redemption tax. There was a point in time in Virginia history where they were running deficits. So what they did they issued effectively zero coupon bonds as a form of paper money that were then put out into the economy and you could use these to pay your taxes in the future. It's exactly this type of structure that the modern monetary theorists are suggesting. This is the core of the theory. So what are the practical implications if this is true? So what difference does it make whether we buy this story or not? Well, one point that they would make is that because in a fiat money system we can really create money without limit. If nothing else we can always add a zero to our currency that's relatively cheap to do even if we're running low on paper just add zeros and we can create as much as we like. So this is not a problem which means then, no level of government spending is necessarily a problem. We are not financially constrained. So we should never ask the question for any program or where are you gonna get the money? Because the answer is always the same. We create the money just like we do with literally everything else the government does. The government just creates the money. So we have the Green New Deal. Somebody asks Alexandria Ocasio-Cortez how are you gonna pay for it? She says, have you heard of modern monetary theory? That's the answer. We just create it because that's what we always do anyway. Now, that's not to say that this doesn't matter, deficits don't matter. We are still constrained by the availability of resources. The government only has so many resources that can extract from the private sector. They probably wouldn't use the word extract but they can use and they can take from the private sector in this way. So deficits may in fact matter if they're competing with the private sector for resources. So there is then the danger. The deficits might possibly cause inflation. So what do we do about that? Well, we have to redeem more of the money. So increase taxes, pull more of the money out of the system and that's the design. So we may challenge with certain historical examples. Think about what the modern monetary theory says. And many of these are things that Randall Ray and that modern monetary theory for beginners explicitly deals with. So he says, so what about something like the 1970s in the United States were at stagflation? Very high rates of price increases, price inflation paired with very high unemployment. How do we explain this from a modern monetary theorist perspective? And he says, well, to understand that we need to look at what the government's spending its money on. So we're creating this money at the time. We're really into things like the space program. We really need very high skilled workers, engineers specifically to be in these high tech sectors that the government is sponsoring. And these people already have jobs. So we're having to compete with the private sector to get engineers to come over and work for the government instead. So this competition is then driving prices up first for the engineers and that spreads throughout the rest of the economy. Meanwhile, people that are unemployed aren't the kind of people the government wants to hire at this point. So they remain unemployed. So it's perfectly consistent within the modern monetary theory view for this kind of thing to be possible. Just look at where that money is being directed and that will give us some answer. Similarly, if we look at extreme cases like why I'm in Germany and how do we get hyperinflation? According to Randall Ray, he says, well, this is, again, easy to explain. And after World War I, we have enormous reparations being placed upon Germany. So much so that Germany would literally have to export everything that it produces to be able to pay off these reparations. That's a pretty severe resource constraint. So the government spends money and immediately we see very, very high rates of inflation because it's immediately hitting resource constraints all throughout the economy. So that's the issue there. I would even go so far as to say, if you look at say the current economy in the US where we have very high rates of price inflation, I've looked, but I've not found, I want somebody in the modern monetary theory world to talk about this because I think they can answer it in a very similar way. What has happened over the past couple of years? The government has stepped in, put COVID restrictions on the economy's ability to produce. We're hitting resource constraints, real resource constraints, the kinds of things modern monetary theorists would say matter. And at the same time, we're handing people a bunch of money and telling them to go spend it. I've not seen them say this, but it wouldn't be that hard for them to, right? It fits within the kind of framework that Randall Ray has already presented for us for the 1970s in four Weimar Germany. So we know then it's possible for this deficit spending to be a problem, but it doesn't have to be a problem. After all, what if instead of hiring those engineers, the government had gone out and hired a bunch of unemployed people. Now we're not competing with the private sector for resources, so that would not be inflationary in their mind, right? So that is why whenever you look at these people, Bill Mitchell, Warren Mose, the Randall Ray, Scott Fuller, Stephanie Kelton, you find some variety in the kinds of things they will advocate for, but one commonality is that they basically all like the idea of a job guarantee program. And if you look at the early drafts of the Green New Deal, there's a job guarantee in there. How exactly that's green is not obvious, right? But they're showing that inspiration from MMT actually having an influence on policymaking. So they all like this idea of a job guarantee where the government's offering anybody who wants a job a job will find something you can do. It doesn't pay very well, right? So the idea is we're only going to attract unemployed people, so this will not be inflationary. This is perfectly fine. All right, so up to this point, we're roughly at the halfway point of the talk. I've been doing my best to speak as if I am this miniature Randall Ray saying what he said an hour and a half and 20 minutes, that kind of thing. Now I'm going to take off that MMT hat put on an Austrian hat. So what's the problem here? How do we respond as Austrians to MMT? Well first, I think it's always a good idea to recognize the good in the points of agreement. It's not all bad, it's very rare to find any ideas that are all bad. Okay, Marxism, but outside of that, it's very rare to find an idea that is all bad all the way through. But even with Marx, you can say, well yeah, we should care about poor people. I can agree with you about that at least. So what about the MMTers? What can we say? Well first, from a technical standpoint, we can certainly agree, we can create fiat money without limit. And if that's true, then asking them the right and saying how are we going to pay for it is not really the right question to ask. Are the right question is what's it going to do to the real resources? And how are we directing real resources with these programs? So I think more of that emphasis could definitely help us, even from an Austrian perspective. The question is how do we pay for this subsidy? The question is what does it do to real resources and the allocation of those resources? So that focus I think is fair. Secondly, I actually really like the idea of disaggregating government spending to figure out what's happening with price inflation. So like they described with the 1970s. I think this is way, way better than looking at something like CPI. Dr. Newman, sitting in the back, has already criticized CPI. Now tomorrow I will use some CPI measures in my hyperinflation lecture. So please forgive me. But far better is to disaggregate this to see what's actually happening or underneath the surface in the economy. So we can agree with that. And I think we can even go so far as to say that credit can actually be a form of money. And I'm not inventing that idea. Ludwig von Mises says that in his theory of money and credit, one of his earliest works, is all there are three different types of money out there. Commodity money, fiat money, and credit money. This idea of credit possibly being the basis for monetary system is possible. Now one thing though we do want to distinguish though, the difference between the credit theory of money and Mises's theory. Specifically I wanna talk about checks. What is a check? Credit theory of money says, oh, this is bank money. That is not the way that Ludwig von Mises would talk about a check. Instead he would say a check is a money substitute. It's what is not money itself. It is something a bit different. So money substitute is an immediately redeemable claim to money that can be redeemed in money immediately, more or less guaranteed. So what distinguishes something like a check from credit money in Mises's mind, he lays this out very clearly. He says for credit money, one of two things has to be true. Either one, it is not immediately payable in full on demand. So you have to wait a while for the thing to mature. So it's something like a zero coupon bond would count this way. Or it's not really clear that it's necessarily going to be repaid at all. It's there's some uncertainty involved with repayment. So you need one of these two things to be true. Either you have to wait for redemption or you're not sure that redemption is necessarily going to happen. There's some uncertainty involved. So one of those two things has to be true for it to be really credit money rather than just a money substitute in Mises's mind. Interestingly at the time that he was writing, Mises actually says that he thought that a lot of what were allegedly fiat monies at the time were actually credit monies because the period in which he was writing was the time where we had the gold standard in the industrialized world but then had abandoned it temporarily. So he thought what was actually happening was that people were still using these paper claims to gold knowing that it wasn't a claim right now but expecting the future that that claim would arise again. The gold standard would in fact be reestablished. He ended up being right at least about Austria as he helped to reestablish the gold standard in Austria a few years after this. All right, so that is the way he thinks of credit money that these things that look like fiat money at the time were actually credit monies now today. I have no expectation whatsoever that I will ever be able to take a $20 bill and get a guaranteed redemption in some amount of gold. So that would be a true fiat currency in Mises's mind. So if we think about the examples that MMT gives with things like tally sticks or things like this, the Virginia redemption tax, those paper bills, I think it's fair to say that those would be thought of as credit monies. Typically they were not immediately redeemable, had to wait some time, say with the Virginia paper currency for it to have its full value and paying taxes, that kind of thing. All right, so I think we can recognize the good there. Fiat money, yes, we can create as much as we want. Zeros can work wonders for us if we wish. We can disaggregate prices to understand the economy better and credit money can be a thing. Now I still have 20 minutes left. I hope that's enough to discuss problems with MMT. So let's start from the theoretical perspective. What are the problems with the theory behind MMT? Well, the first, this is pretty foundational, the definition of money. So what is money? Now we know having listened to Dr. Klein's lecture, money is the generally acceptable or commonly acceptable, take your pick, a medium of exchange. Now I listened to Randall Ray's talk, MMT for Beginners, where's that definition, where is it? And I heard two things that might possibly be definitions. It wasn't particularly clear about either of these ones being the definition, so we'll just deal with both. So the first, which is very consistent with the credit theory of money, is that money is an IOU, so money is a credit instrument. And this is exactly what Alfred Mitchell Ennis says in his credit theory of money when he introduces the concept that money is credit. And so that is one possibility. And in fact, he goes so far as we described at the hierarchy of money, that literally any IOU, any credit instrument is money in this conception. Now the second definition he gives feels slightly out of place, but he also gives us, and it feels almost definitional, that is that money is a social unit of the measurement of value. Now this is another thing that he gets from Alfred Mitchell Ennis, I was going through that essay, just kind of scanning through last night, and I realized both of these phrases are things very close to them come up in that original essay over 100 years ago from Alfred Mitchell Ennis. So money is a social unit of the measurement of value. While we can pick whichever of these definitions we wish, they both have problems. And so let's start with the second one first just to make it confusing. Now because it's easier to deal with. So money is a social unit for the measurement of value. What's the problem with this definition? In brief, value is not measured. Because value is not a trait of a good. It's not in the good itself. In the words of Mises, value is the importance that acting man attaches to ultimate ends. Value is not intrinsic, it is not in things, it is within us. So if it's not in the thing itself, you cannot measure the value of this PowerPoint remote because there's no value in here to measure. We can measure its weight, its weight is something fundamental to this object, we can measure its length, that is also something that's given a certain relativistic speed and all that fundamental to the object and so on. So those are things in this object. The value though is not in this object, the value is in me or you or whoever it is that's doing the valuing of this object. So we can't actually measure the value. And so money is a social unit of the measurement of value with such a thing cannot exist because value cannot be measured, okay. I don't think that they want to claim that money cannot exist, all right. So that's probably not it. Now let's be as charitable as we can. Maybe by value, they meant something like objective exchange value or what we'd call price. After all, in his writings, Mises uses the same kind of terminology. He's just clearer about it, right. So maybe what they mean is the social unit for the measurement of price, but that doesn't help because again, prices don't exist right outside of the money itself. Prices are not measured in money, they're stated in money. They're amounts of money that we exchange to get something or that we receive an exchange for something. Prices do not pre-exist the money and then we use the money to measure those prices. So again, this doesn't work. So prices aren't measured in money, value is not measured in money because neither of these things can really be measured. So then that leaves us the other simpler definition to state, but it is actually a bit harder to critique at least in my mind. So money is an IOU. So this does of course suggest, and they are very clear about this, that any IOU can be money. Stephanie Kelton affirms this definition in her paper, The Role of the State in the Hierarchy of Money. She says, and here's a quote, money is credit, that's straight out of Alfred Mitchell-Linus, it represents a debt relation, a promise or obligation which exists between human beings and cannot be identified independently of its institutional usage. She then quotes Minsky saying, everyone can create money, the problem is to get it accepted. And so this idea that every IOU is money is right there. Now Kelton, to her credit, does actually correct Minsky here and pointing out that debt is always a two-sided transaction. If nobody's willing to accept the other side of that transaction, you can't actually create a credit instrument. Nobody wants to lend me anything, I can't create a bond. So she did correct Minsky a little bit on that point. So money is credit. However, this idea of the hierarchy of money suggests there's something else going on. So we're ranking different types of money in some kind of list based on, we might say, money-ness, some things are more money than others, state money is above, bank money is above, private monies. So what are we using for that money-ness? Well, even within MMT itself, it tells us the standard and that is acceptability is a medium of exchange. What makes state money special is that everybody accepts it. That definition sounds familiar to me. Money is a commonly acceptable medium of exchange. Hmm, I think that's exactly what Dr. Klein said a couple of days ago is the Missessian view. So in effect, using a Missessian criterion to rank all of these things, they just want to call more things money. All right, so that means really that Mises can take over again at that point. Once we accept that this is an important criterion for money, acceptability is a medium of exchange, then we need to start thinking about what does Mises say about credit money? Well, yes, it can exist, but credit money relies ultimately on its redeemability and true money. So the reason that these credit instruments are valuable is because they are claims to something that we recognize outside of that as being money. For example, let's go back to that dialogue concerning this checker. At the top of the tally, a cut is made, the thickness of the palm of the hand to represent 1,000 pounds. We have to already have a sense of what 1,000 pounds is and what it's worth is for this to make any sense whatsoever. So it's not just some abstract unit that the government can just create out of nowhere, rather we have to have a preconception this is something that is valuable that I would actually want people to owe me. All right, so we need to kind of separate this idea of this abstract unit of credit which is underneath what they're talking about with the credit theory of money and say, no, there must be something actually valuable there. Another issue with the MMT is the historical issue. So they like to talk about the fact that, well, we know that debt exists, but we don't really know that barter ever existed. One thing that I think is an interesting observation writing for amisa.org, Michael Spencer Watson points out that even if it's true that we had debt before we had a medium of exchange, that's not a problem for us from a Misesian perspective. It's perfectly possible in a pre-monetary economy, say, I don't know, say, I give you a cow and then you promise me over the course of the harvest you're going to give me a certain number of, say, bushels of wheat or something like that in exchange. All right, so we just did a barter exchange, but there's also this debt instrument built in there as well. You're not giving me all of the wheat right now, I'm pulling from the harvest that's going to be happening over the next several months. So he says, we can just call this intertemporal barter. There we go. If we have credit instruments before we have money, that's perfectly fine, right? We just attached a name to it. It doesn't have to be money necessarily. Another issue with this theory in terms of its generalizability is the exclusion of commodity monies. And so if money is always a credit instrument and we even think of fiat money as being a credit instrument itself, well, where do commodity monies fit in? Now that they try to make this claim, well, we don't have evidence of that. We started with credit instruments so there were no commodity monies as the claim. But then we run into issues. For example, in his talk, Randall Ray is quite clear, for example, that Bitcoin is not money. It can never be money. Why does he say this? He understands that Bitcoin is not a credit instrument. I would actually contend that Bitcoin has more of a commodity element to the way that its value is established, but we can talk about that later. This isn't a Bitcoin talk, but he runs into problems here because we know that Bitcoin is used as a medium of exchange. Now I wouldn't call it money at this point. Maybe in this room, most of you would accept Bitcoin, but I suspect outside this room, it's fairly difficult to find people that will accept Bitcoin as I buy groceries, that kind of thing. But it certainly has been used as a medium of exchange. We know this. I know this from personal experience and that I have given lectures in exchange for Bitcoin. So I can say 100% certain it's been used as a medium of exchange. And we also have very interesting from an MMT perspective in terms of the state theory of money, we have governments accepting Bitcoin and payment of taxes and declaring Bitcoin to be legal tender within their economies. El Salvador, in the example there. They recognize Bitcoin as something that they will accept for tax payments. Well, that's interesting when that put Bitcoin at the very top of the monetary hierarchy. It's used for the payment of taxes, yet it's not money. It can never be money, according to Randall Ray. And even my own state of Ohio, there was a very, very short months in which we accepted Bitcoin and payment of state taxes. Turns out the process of finding the process of this was somewhat corrupt. So a judge said, no, they're not allowed to use the system anymore. But there was a period of time or even here within the US where we had a state that was accepting Bitcoin and payment of taxes. Interesting. So how do we deal with this within their framework? It's not so clear. Even moving away from Bitcoin to other historical cases, we know, for example, that cigarettes were used as a form of medium of exchange within prisoner of war camps. So what was the state of these things? Like, what was happening here? Was it barter? MNT, we deny barter. It cannot be that. Are these credit instruments? It's kind of weird. It's not obvious why that would be the case. After all, I mean, if I have a bond, I'm probably not gonna light it up and smoke it. It's not the best use of a bond, right? So how do we deal with this? And it's not obvious that we can. So they're missing a big part of their monetary theory, which is very important. It ends up making them blind to a lot of what is actually happening historically with the monetary economy. Now let's get to what I really consider to be the fundamental theoretical problem. And that is how do we establish the purchasing power of money within their system? This has been a problem. This is one where this part of the lecture is very easy to write because this has been a problem ever since Gorg Friedrich Knapp. So I just had to find where Mises talked about this and translate out of his very German English into more modern English. That's basically all the work I had to do. This is not a new problem. So, according to Mises, how do we get the purchasing power of money? So I'm rehashing here some of what Dr. Klein said. I mean, what comes from, like anything, the value of anything in exchange, it comes from the supply and demand. We have a demand for money, the demand for holding cash balances specifically, and there's a supply of money. The two of these interact to give us the purchasing power of money. Where does the demand come from, according to Mises? It comes from our expectations regarding what it's going to be able to buy. We form these expectations based on what we had seen in the past. So I have some sense of what money could buy yesterday. This tells me how much money I think I want to hold today and then that desire to hold money is going to have an impact on what the actual purchasing power is today. Now, on the basis of this, we can say that for money to be used as money, it had to have had some kind of value in exchange before that. And that's where we get the story about the origin of money had to start with barter. Whatever we used as money had to have some value previously that we could look at and say, okay, I don't want this for itself. I wanted an exchange. Well, how much do I want? I need to know what I can exchange it for. So that's why we know that it had to have been a commodity to start. Now, okay, so we have a good theoretical basis for the Misesian story. Do we also have a good historical basis? Well, I did some research that is to say I looked at Wikipedia and used a little bit of knowledge that I had previously acquired. And I can tell you that the US dollar, the euro, the Japanese yen, the pound sterling, the Australian dollar, the Canadian dollar, the Swiss franc, the Chinese renminbi, the Hong Kong dollar and the New Zealand dollar, at least those 10, have a very clear historical tie to either gold or silver. Now, it may be direct in the case of the US dollar. It may be indirect. The euro was pretty indirect. The euro went through a basket of European currencies which were tied to the dollars or tied to gold, go back 50 years or so, little bit over 50 years at this point, I believe. But we can find all of these ties going back ultimately to a commodity, gold or silver. Now, why did I list these 10? It sounds kind of an odd list. Well, it turns out these 10 currencies make up 90% of foreign exchange trades. So I think within that list of 10, we can say I caught the major currencies in the international economy. Now, does that mean strictly speaking that every single currency will have not proven that? I only gave you 10 extremely major currencies. Maybe there's something out there I missed. But I'm willing to use a little bit of inductive reasoning here. See, if these 10, probably the rest, right? Especially since we have the logic as well, right, coming from Mises. So at MMT, where does the purchasing power of money come from? Again, presumably it's the supply of and the demand for money again. They don't seem to deny this idea. After all, they make a big deal about the demand for money coming from the promise of taxes in the future. That's why we hold money so we can pay our taxes. And so this seems to be okay. So we have a demand for the medium of exchange so that we can pay our tax liabilities in the future. The problem is this doesn't really work for demand because it doesn't tell me how much I should hold or what I should be willing to offer to get it. That's unclear, right? So even if we have a case, like suppose that the government informs me that when it comes tax time, I'm going to owe them 100 arbitrary units or whatever the unit is that they've decided, I owe them 100 of these things. So I have to acquire 100 of them over the course of the next year. What am I gonna do? Well, I don't really know how much I should offer of anything to acquire these 100. So probably the simplest course of action is for me to find out what does the government need done to do direct work for them to receive 100 units and just hold onto it until the tax collector shows up. It seems to be a sensible way to handle this problem since I really don't know how to use this thing in exchange with anybody else. And I would propose that is exactly what many people would do. Now, can I say this with apodictic certainty? Well, no, but we do have some historical examples. Colonial Virginia, their paper money. Really interesting study done a few years ago looking at the value of that money and how it was determined. So this paper is called Colonial Virginia's Paper Money 1755 to 1774, Value Decomposition and Performance in Financial History Review. Farley Grubb was the name of the economist doing this work. And what they were looking at saying, well, where did the value of this paper money come from? What was it treated like? And what they found was that when you looked at its value in any exchanges we have records for is that it was just treated like a zero coupon bond. It didn't appear to have any monetary premium on its value whatsoever, which suggests that most of what was happening in that economy was that people said, well, I have to pay taxes in the future. I need to make sure I acquire some of these and I'm just gonna hold on to them. We don't actually see it being used in a significant way as a medium of exchange. Fascinating thing, historically that's the kind of thing that would be exactly consistent with the story I told. Just gonna acquire as much as I need and then hold on to it. I'll use something else as a medium of exchange where I can actually establish a value. So the last few minutes, I'm gonna deal with the practical issue. So look at this job guarantee. Seems like the one thing, the one policy that all of our modern monetary theorists agree on. So we ask the question. So what would happen if people accept MMT as true and operates the government budget on that basis? Now, presumably the government's going to spend more specifically on things like a job guarantee where it looks like the government is bringing these unused resources, unemployed resources, idle resources, bringing those into production. And that's probably the best case, right? All right, everything else they agree and we would agree with them, it may potentially be inflationary in terms of price inflation. So if they're unemployed resources, can't the government just employ them and have this be a good thing? We're taking things that were previously not being used for production or using them for production. Seems like we'll obviously be better off. Not so, right? So there's the economist William Hutt wrote a really great little book, The Theory of Idle Resources. And at the time he wrote it, he was answering John Maynard Keynes. It turns out this is an idea that the MMT is inherited from John Maynard Keynes. And the assumption that full employment of resources is a desirable thing. What Hutt says is that that's not true. Sometimes we actually want resources to appear idle. Now sometimes that's because resources actually, certain resources may just be valueless. I don't actually have any idea how to use this thing in a meaningful way. So forcing me to try to use it in a meaningful way is just going to be a waste of time and effort. We also have cases, for example, he talks about pseudo-idleness. Pseudo-idleness, it's one of my favorite concepts because I own a car. That's a weird statement I know. But what does my car do most of the time? It sits in my garage or in the parking lot at work. Nobody using it. Idle resource, isn't that a total waste? I shouldn't we have some way for other people to be driving my car all night while I'm sleeping, all day while I'm at work, that kind of thing. Wouldn't that be ideal? And there's certainly people out there, especially on the environmentalist side that kind of push this idea, we need this more of a sharing economy or share resources and we don't need as many resources. But the reality is the reason I have that car in my garage is that sometimes I'm going to need a car when I don't expect it. My kid falls out of the tree and breaks his leg. I wasn't planning a trip to the ER, but I need to make one now. So it looked like it was an idle car, but it wasn't. It was being held in reserve for the unexpected to happen. I admit I'm not necessarily the best employee. Sometimes I decide to leave work at four instead of five. And I don't always know when that's gonna be. Being kind of an intellectual job, sometimes 345 hits and I'm just done. I'm not going to be productive for the next hour. And I don't mind saying this on YouTube or anything like that because my Dean is very understanding and doesn't actually care if I'm in my office all day. So there's this understanding that, okay, as long as you do your work, you're okay. So sometimes I leave at four, sometimes five, sometimes five 30, a student shows up, right as I'm getting ready to leave that kind of thing. So it's important to me to have my car in reserve so that I can leave when I need to leave. So that's the idea of pseudo-idleness. And we can apply this more generally. For example, what Hut had in mind at the time that he was writing was we have people sitting in town square waiting for somebody to show up with a job for them. Oh, I'm building a barn, hop in my truck and then we're gonna go out and build a barn together. I'll pay you for that. So while people are sitting here in town square, it looks like they're idle, but they're not. Are they being held in reserve for a job that may be unexpected? And this is the way we might understand things like unemployment in the modern economy. People waiting around for us to come up with a job for them. It's an adjustment process to figure out what we're going to do with them. And they need to be ready to go when that job comes around. We also have preferred idleness. That'd be my 93-year-old grandmother. She does not have a job. I wouldn't wanna force her to have a job. She doesn't want a job. She's perfectly content that way. Sometimes idleness is actually making us better off, not materially, but in terms of our well-being. All right, so if we take this to be true, then what does this mean? Well, first, employing all these unemployed workers is not necessarily making us better off. We're losing our reserve workers. We're taking people that may have, well, may not that would prefer idleness. You don't have to take the guaranteed job. But at least the pseudo-idol workers, suddenly we have bound them up in something else and it's gonna be difficult to get them out. But another point that I would make with the negative 30 seconds I have, is that any job requires more than just a person. You need to have stuff to work with, right? So Randall Rayo, when he talks about this idea of a job guarantee in his paper, Government as the Employer of Last Resort, he gives a list of jobs. So I'll just pick one of them, artist. And so we could have people paint murals on public buildings. That's a job guarantee kind of job. Of course, with the exception of certain performance artists, I guess, artists need something to work with. You have to get them paint. You have to get them paint brushes or you have to get them, I don't know, chisels and hammers and stone and whatever they're going to work with the material needs they have, which means then, we're gonna be competing with the private sector for these other resources. It's not just the workers they have to worry about. We have to worry about other resources. We start competing with the private sector what happens. According to MMT itself, we start seeing prices go up. Then we have the choice. Are we going to just let prices rise? That doesn't sound great to me. I don't love seeing prices rise. Or are we going to do what the MMT are suggest and that is raise taxes. What are raising taxes do? Well, according to Randall Ray, this is a quote, but it decreases the ability of the private sector to compete with the government for resources. Take a few minutes to parse that sense at some point. The private sector competing with the government for resources. So what is the vision then if we do that? We're looking at the government having a bigger and bigger role in the way the economy runs. And we know what the consequence of that is because we heard Dr. Salindo's lecture regarding calculation and socialism. That's all I have here. So thank you very much.