 Since this is my first lecture of the week, I've gotten to take half the week off so far. I like to introduce myself a little bit so you can kind of know my background who I am. So I used to like to start by saying, it wasn't that long ago, right, that I was a student, right, sitting there in the seats that you are now. Then I realized that 2003 might actually be on some of your birth certificates, so not that long ago, it was a relative term, it turns out, right, but I do, so it is certainly a great honor, right, for me to be able to stand up here, right, where so many of the professors that you see are the ones that I saw, so they're at least older than me, I guess, okay. And I especially like talking about money. It's one of my favorite topics. I like to say when I first started in undergrad at Grove City College, where I was a student of Dr. Rittenauer and Dr. Herbner, I was economics pre-law, and my goal was to be a corporate attorney. That's what I wanted to do, right. But then I sat in principles of microeconomics and I loved it so much, I said, you know, I'd actually rather study money than happening. So that was my decision to become an economist, okay. All right, so let's talk about modern monetary theory. So first, now the classic joke, of course, is that modern monetary theory, it's not really modern, in a sense it's not even about money, right, and whether it's a theory is debatable, right. But I think we do need to nonetheless take it seriously and be very fair with it, because I think it is for a few reasons. And I think just from an ethical standpoint, we need to realize that MMT very much like the Austrians were kind of out of the mainstream. I think that's changing for them. I hope it's changing for us, right. But as being out of the mainstream, one thing that's very easy for mainstreamers to do to us is to misrepresent what we're saying, right, and then dismiss us, right. So you see people like Paul Krugman say, oh, MMT, they just say that deficits never matter. Eh, that's obviously not true, right. We don't need just spending, we need taxing and spending. This was an actual blog that he had on The New York Times. It's not surprising coming from Krugman, I guess, but this dismissive attitude, right, is the kind of thing that it can be tempting to do toward those that are easy to dismiss, right. They're outside the mainstream. We don't have to pay attention to them. But it also suggests that my goal, right, is for us to move economics forward, right, as a discipline, right. For us to do this, we need to have honest debates and honest debates require that we honestly consider what people are actually saying, right. So I'm going to end up spending probably slightly more than half my time just describing what modern monetary theory is from their own perspective before I even think about responding to it from an Austrian perspective, right. So when we get into modern monetary theory, let's start by just what is the goal, right. So what modern monetary theory is trying to do, right. And where the name comes from, it's not claiming the theory is modern. It's claiming to be a theory of how modern money works, right. So we want to understand how economies work when we have a sovereign issuer of fiat currency, right. So when you have a government that can issue its own currency, right. As much as it likes to in this sort of fiat unbacked fashion. And so this would describe economies like, say the United States, where we can issue as many American dollars as we wish using the Federal Reserve System, or say the UK, right. They have control over the British pound or Australia. It would not do so well if we're trying to describe the Eurozone, right. Where individual fiscal authorities do not have control over the Euro in the same way that say the United States does. So I don't think it's any accident that when you look at the big names in modern monetary theory, people like Bill Mitchell, Bill Mitchell is Australian, right. Warren Mosler, Randall Ray, Scott Fullwiler, Stephanie Kelton. You tend to find lots of Australians, lots of Americans, very few, say people from Spain or France, right. It's not surprising, as they're trying to describe the system under which they live, right. So a lot of this lecture is going to pull from, especially the work of Randall Ray. He has a very good lecture. It's a little over an hour long. It's modern monetary theory for beginners. And so when I first gave this talk a couple of years ago, I thought, that's a good place to start. Let's find out, right, from the horse's mouth. What is this actually all about? What does he think is important? And then try to boil it down, right. So these are what I think are kind of the most important elements that we need to consider and that we can respond to. Now, certainly I can't respond to all of modern monetary theory. Even with just this handful of names that are significant, they don't agree with each other on everything. That makes it difficult. And there are some things they say that I really don't necessarily have much response to. They may not be central or may not be something that we as Austrians have much disagreement with for that matter. So let's take a look. So we're going to start with the origin of money. So how does the origin of money come about according to modern monetary theory? So it's really a combination here. This is where we say it's not modern. It's a combination of two older theories. So one of those is the credit theory of money, which comes from Alfred Mitchell Ennis was the one that has been credited with this. So the idea here is that money is really just debt, but from a different perspective. So just as an example, so suppose that you perform some services for me and you clean out my van or something like that, which, and we decide that it's fair for me to pay you $5 to do this, right? That's probably not fair. I have four children. Cleaning out my van is worth more than $5, but let's say that we agree to $5. But I don't have the $5 on hand, which is totally believable. So I give you an IOU, right? So here, IOU $5 and I sign it. I hand it to you, right? So now you have this credit instrument, like you have this claim against me of $5. So then later on, right? I help you out in some fashion, perhaps I help you plant a garden or something like that. It's a questionable decision on your part, given how my garden goes. But I help you plant your garden and we decide that this is worth $5, right? So then rather than pay me $5, you take that IOU and you hand it back to me. So remember, you owed me $5, so here's this IOU back. So we have this credit being created and then being redeemed is what's happening. So according to the credit theory of money, what eventually happens is we have these credit instruments that are floating around and people start trading them. So it may be that you don't want to redeem those $5 of Englehart help, but somebody else may. So you then use this credit as a medium of exchange, or you buy something else from somebody else with that and then they would end up redeeming it. So then we do actually see this medium of exchange usage. That's how money would come about, according to the credit theory of money. Historically, Randall Ray describes this as we've seen this type of thing happen. We've seen credit instruments being used as money. He likes to use the example of what they called tally sticks. That's the tally stick, what it was, it's a piece of generally hickory. And then they would take and they put hash marks in it, indicating a certain quantity. And then they cut the thing in half lengthwise. So you have two virtually identical halves that are records of what is in the end of credit transaction. So one of these, the creditor holds onto, the other, the debtor holds onto, and then when the debt is paid off, you take these two halves of the stick, you match them up to make sure that nobody has tried to mess with the notches. We have an accurate record of what the credit was, and then we take them and burn them. So everything's paid off. We can burn the tally sticks. The debt is expunged. It's very much like burning your mortgage after you've paid it off, that type of thing. So that's what would happen. And it turns out these tally sticks were used, not just as debt records, but then if you were the creditor and you had this tally stick against someone else, you could then go out and purchase things with this. You hand it off to somebody else and now they are the creditor. So it's effectively like, say in the modern economy, if I have a savings bond and then I buy something from you and give you the savings bond rather than giving you federal reserve notes. That's effectively the equivalent of what's happening here. And then it suggests that we don't just have these tally sticks, but in fact, if you go way back, look at the anthropological evidence we have, you go way back to the earliest writing. Some of the earliest writing we see are debt ledgers. So this suggests the debt is very, very old. In fact, so old, they make the claim that debt, well, it's prehistoric. The first thing we decide to write down is, Anglar owes me $5. Then the debt must have pre-existed for us to decide to then write it down afterwards. So debt is prehistoric, but then it suggests that if we think about, say, the Minger story, as we heard from Dr. Sandy Klein on Monday, we have a barter economy and then somebody decides, hey, I can use this commodity, not because I want to use it myself, I'll just hold onto it and then pass it off to somebody else. It becomes a medium of exchange. They suggest we actually don't have any evidence of barter economies existing prehistorically. Well, the right about this I think is debatable, but that is the suggestion that Randall Ray makes. Okay, so we have debt then is created and then used as money and that's where money comes from. So now we add to that another theory of money. And that is the state theory of money, which was originated by Georg, app, not a nap. So how this foundation comes about. For one, I don't think we disagree with the idea that the state has been involved in money for a long time. So we start with that observation. It seems like money comes about and it's not long after we know that the state is getting involved in interfering with what's happening from our perspective and interfering with what's happening in the monetary system. So what does this do from the modern monetary theory perspective? Well, they would suggest that this state involvement is necessary to unify the monetary system. Because the problem we have is that if we have all of these different credit instruments around, well, some of them are issued by Engelhardt, some of them are issued by Herbner, some of them are issued by Thornton, some of them are issued by Klein. We're not all necessarily equally credit worthy. So say for example, if I had a tally stick and it was a claim against Dr. Herbner, that's as good as gold, right? If it's a claim against me, if it's a claim against Peter Klein, you just burn it now, right? So it's not worth anything, right? So we have all of these different qualities. So that makes it very difficult if we wanna do something like economic calculation. So which of these tally sticks or which of these forms of credit should I use for accounting purposes? It's not obvious because they're all out there circulating against each other, not actually having equivalent values. So what the government then does, it steps in and provides a money of account, right? And that is IOUs issued by the government itself. So the government itself issues IOUs and then declares, I will someday be coming around to collect these IOUs in the form of taxes. You will provide me as many IOUs as I ask for at that point in time. If you don't, well, I've used these IOUs to pay a bunch of guards, soldiers and the like and you're gonna have problems if you don't. So there's clearly going to be a demand being created for these IOUs because basically everybody has to pay taxes. Basically everybody's going to want to accept these IOUs from the government. So now we have a unity provided within the economic system. So that means if I wanna do accounting, it's fairly obvious what I should do. So I will count my income, I'll count my expenses, look at my assets, liabilities, all in terms of the government money or government IOUs. And so state money is at the very top of what they would call a hierarchy of money. So money is debt. In fact, any debt is money, but state money is very special. Then we have underneath that would be bank money. So things like checks. So the way that a modern monetary theorist would look at a check is not that it's a money substitute. Now it is in fact its own form of money issued by banks. It has a claim against the bank as its own debt. Then it is a separate form of money. But because these are generally considered to be extremely reliable to have it redeemed then in state money, it's generally treated as good as state money. So that's how we end up with the banking system being very important. And in fact, it's so reliable that generally governments will accept payment for taxes in the forms of checks or this other bank money. So we have most privileged is the state money itself, right beneath that would be bank money. But then underneath that would be all of these other little monies, the credit instruments against Engelhard and whomever else. So firms, households and the like. To this hierarchy of money. All right, so that's the origin of money. So we have credit instruments, the state then unifies the system. So let's then look at the modern monetary process. After all that is the emphasis here. We want to explain how does the modern monetary process work? So if we think of things in this way, I'm going to boil it way down to what I hope is a simple example. So imagine that we have a village. It takes a village, so we have a village. And the state in that village has decided we're going to become a monetary system. So I'm going to pay all of our guards that are protecting the village against outsiders and against internal criminals. I'm going to pay them in IOUs. I'm going to inform all of the people that in fact they will have to pay taxes later on. So that's the way the system works. So notice something about this, right? It's impossible for me as the state to collect taxes and then pay my soldiers with it. It's totally impossible because the people don't have those IOUs from me yet. So instead the way that things have to work is that we as the state have to spend the money first. We spend it into existence. So we spend that money into existence first to our soldiers and they go out and they buy fruit and shelter and what have you from the various villagers and that's how money gets out into the system. And then later we as the state come back and redeem at least some of that money in the form of taxation. So they suggest that this is still the way things work today, that when the government spends money, it's spending money into existence and then it redeems some of that money in the form of taxation. So now let's look at some of the practical implications of this. So there really is, as I said before, there's a lot of disagreement amongst MTRs about exactly what we should do, what are the implications of this with one exception. And that is they do tend to agree but because fiat money can be created without limit. It's very easy to create fiat money. Zeros are cheap. So instead of creating $10, we can create $100 bill and it's almost as cheap as the $10 bill was. And especially since we live now in a day where a lot of money isn't even physical form, it's very easy to add a zero on a computer that's even easier. So we can create money effectively without limit which then means we're spending money into existence. Is there really any limit to government spending? Practically no. We can just create the money to spend on whatever we want to spend it on. Now it doesn't mean that deficits don't matter because we still face resource constraints. So that is really what matters. The resource constraint, the question, how are we going to pay for this program is not really relevant. The question is does the economy have the resources to make this program happen? That is really the relevant question from an M.M. Tears perspective. So they are not some kind of post-scarcity people that believe that, no, we clearly have enough resources for whatever we want to do. It's like the world of Star Trek. With anything we want, we walk up to a hole in the wall and say, T.E.L. Gray hot and it appears. No, that's not the world that M.M. Tears live in. They live in a world that's much closer to reality or we do actually have real resource constraints. And in fact, this is extremely important to them in explaining certain episodes throughout history. So just a few examples of those. So Randall Ray faces the question, something like how do we explain the U.S. in the 1970s? Nice, in the U.S. in the 1970s, we have very high rates of inflation. Prices are going up very quickly for us. At the same time, unemployment rates are very high. And now if we know the history of economic thought, we know that this was an important episode in questioning the Keynesian orthodoxy of the time. Because according to basic Keynes, this shouldn't be possible. Everything is driven in the Keynesian system by aggregate demand. So if there's an increase in spending, consumers household, consumers households, yeah. Consumers households, firms, the government, if we're all increasing spending and we start running into resource constraints, prices go up, but at the same time, everybody has a job. Because we're buying a bunch of stuff, we have to produce that stuff. On the other hand, it's possible that maybe our consumers or investors are getting kind of nervous, they're cutting back on spending, they're saving more, oh no, it's not good. Or perhaps the Republicans take over Congress and cut spending. It's hypothetical, it's case. So we have all this spending dropping, aggregate demand is falling. So that would certainly keep prices under control. Nobody's spending money. But at the same time, we're not gonna be producing very much because nobody's buying anything. So we'd see very high unemployment. Which means in the 1970s, our mystery. How do we see high price inflation at the same time as a bunch of people are unemployed? And Randall Ray has an explanation. And he suggests, well, it matters what government does with its money. With that spending, where it goes has an impact. So he suggested that what was happening in the 1970s was there was a very strong emphasis on the space program which meant that the government had to hire very highly skilled, highly trained people, engineers, rocket scientists and the like. And these are people where their skills were demanded already by the private sector. Which means the government had to bid these people away from the private sector to get them to come work for NASA instead. So that's bidding away as driving prices up. Meanwhile, in other sectors of the economy, things were not going so well. People were getting laid off. But the government really wasn't interested in hiring these people. So on the one hand, where prices being driven up as the government spending in places were already resource constrained. But then there are other sectors that are not resource constrained and that's where we see the high unemployment. Or the same kind of explanation of thinking about the resource constraint is very important in explaining things like, say, why are Germany and the hyperinflation? So what was going on according to MMT was that we had these huge war reparations we had to pay and they had to be paid in foreign currency. Which means then, effectively, when you look at the size of these reparations, Germany effectively had to export all of its output to get enough foreign currency to pay these reparations. Which means as soon as the government starts spending money, there's effectively nothing left for them to spend it on. So extremely resource constrained that any spending is going to drive prices through the roof. Similarly, if you look, it's a little bit different when you look at the Zimbabwe case, which is more recent, right there. It wasn't so much war reparations or something like this. Instead, what they suggest is the problem there is that what governments should do, according to MMT, is when we start seeing these prices going up, we start imposing taxes, we redeem that money. But that didn't happen in Zimbabwe. According to them, the Zimbabwe government was just too weak to be able to reliably impose a tax system. So as a result, they're spending all this money that's driving prices up and they just didn't have the ability to soak this back up through taxes. So again, we have explanations for why in fact deficits can matter, at least sometimes. However, there are times that we don't have to worry about the government spending too much and there's one particular program that you'll see virtually every MMTist propose we should have. That's the job guarantee. So the idea of the job guarantee is that anyone who wants a job, the government will provide one to you at a fairly low fixed nominal wage. So perhaps you pay $10, $12, $15 an hour, it's something like that. So it's not an enormous amount of money, but anybody who wants a job can come and the government will put you to work. Randall Ray has a paper about this. He goes into great detail on this. It's government as the employer of last resort. So I'd recommend if you want to know more about this, go ahead and look that up. He actually includes in this a list of jobs that he thinks would be appropriate to be part of this program. So things like being a companion for the elderly. And so the government hires you and now it's your job to go help elderly people that may have a hard time doing household tasks or something like that or just lonely. It's your job to go and spend time with them, help them out. Or perhaps being a teacher's aid in elementary school classroom, perhaps shelving books in a public library. So we notice a lot of these jobs exist in some form or another. It's just now the government is the one organizing this and providing these jobs to whoever happens to be unemployed at that point in time. Now because we're dealing with people that were previously unemployed and we're not paying them much, we're not bidding resources away from the private sector. So we don't have to worry about running into resource constraints and causing inflation with this program. That's the MMTS claim. All right. So hitting about the halfway point, let's go ahead and respond a little bit to this. So first, I think it's important any time we deal with somebody that we do disagree with in many ways, but we at least recognize the good. So what is good in MMT? What do they do right? First, I think it is true that technically speaking, if you got money, yes, can be created without limit. So in a sense, we actually shouldn't be asking the question, how are we going to pay for all of this COVID stimulus? We should be asking the resource question, how is this directing the way resources are being used within the economy and is that actually going to make people better off or worse off? I think that focus is the appropriate one and I like to believe that we as Austrians do a pretty good job at that. Not necessarily all of those that would be considered more free market don't always do as good of a job with that, but I think that we do pretty well. And so emphasizing the real impacts of things like stimulus and subsidies and the like, I think that's important. Secondly, the idea of disaggregating prices in order to understand price inflation. This is something that we also suggest you should do from an Austrian perspective, that when we aggregate the economy the way that a Keynes or Friedman would do, we're going to miss a big part of the story, which is why we end up with things like stagflation being such a mystery to Keynes. It's not so much of a mystery to MMT nor is it such a mystery to us because we realize the economy is not just one big blob. We have all of these unemployed people that are equivalent, all these prices that are effectively equivalent and we can just throw together. Disaggregation is important. So I think we can agree on that front. And the third point, I think we can even agree, and here I might be getting a little bit daring, that credit can actually serve as a basis for money. In fact, I would go so far, and here I'm pushing boundaries perhaps, as to say that it might be that the first money that existed, I don't know, I'm not an anthropologist, it might be that the first money that existed, the first thing used as a medium of exchange was something like a claim to a certain amount of wheat rather than the wheat itself. So I engaged in some transaction, somebody owes me a certain amount of wheat, they didn't have it at the time, but they owe it to me in the future, so I have this claim against them and I decide, well, I don't actually need that wheat in the future, so I hand this off to somebody else and use that in exchange. Perhaps that was the first medium of exchange, I don't know. But I think it's important to distinguish here a couple of things. One is the possibility of credit money is something that we as Austrians have never denied. You go back into reading Ludwig von Mises's theory of money and credit, he talks about three different types of money. So we have commodity money, we have credit money, and we have fiat money. So this idea that credit money is possible is certainly something that's there. So credit money, what distinguishes it from fiat money in Mises's mind is that it's a claim against a legal or physical person, and what makes it different from, say, a money substitute, something like a check, and it's first is that it's not immediately payable on demand, so it's not like a check, and secondly, it's repayment is not absolutely certain, so it is actually a credit instrument where there is some kind of uncertainty involved, but this type of thing, these credit instruments could possibly be serving as a medium of exchange. Mises acknowledges that this does in fact happen at certain points in time. And even suggested at the time that he was writing that a lot of what was considered fiat money by many people might actually have been credit money, but at that point in time we had gold payments had been suspended, but people were expecting gold payments to come back at some point. So even though I don't have an immediate claim to gold, I think there is this claim in the future, so it's this future claim, not immediately redeemable, but ultimately I value this allegedly fiat money because I believe it is a future claim or a claim to future gold. A lot of people are going to end up being disappointed, but why are we valuing it? Maybe because we thought of it as credit money. Now let's get into some of the problems. So I think the first problem, and an extremely fundamental one, is the definition of money itself. Now, I think that I may have been a little bit fuzzy in terms of the definition of money and there's a little bit of fuzziness in terms of the definition of money. So even in that modern monetary theory for beginners talk, Randall Ray gives two different definitions of money. And it's not a case where one of them, oh, he just rephrased or something like that. No, they are actually drastically different from one another. So the first one is that money is an IOU. So that sounds like what we mentioned before and it goes so far as to claim that any IOU can be money. So that IOU $5 from Englehart, that can serve as money just as well as a treasury bond or what have you. But then he gives another definition and that is that money is a social unit of the measurement of value. I think both of these definitions have problems with them. Let's start then with that second definition. So money is a social unit of the measurement of value. So in brief, I think the problem is that you can't measure value. The problem is that value is not something that is inside of the good, it's not intrinsic to a good, rather it is subjective as we know. As Mises says, value is the importance that acting man attaches to ultimate ends. Value is not intrinsic, it is not in things, it is within us. Which means that any particular item may have multiple values. In fact, it does have multiple values based on who's looking at the thing. That's one of the implications of subjective value and the heterogeneity of us as consumers. So the idea that we have a social unit for the measurement of value, value is not a trait of a good that we can measure. Now, very well might be sometimes we as economists will do this. It is sometimes said that an economist is somebody that knows the price of everything and the value of nothing. Sometimes we slip up. We say value and we mean price. Now, I don't actually know that this is what happened with Ray but I want to give him the benefit of the doubt. So maybe it's the social unit for the measurement of price. Well, here we run into really a very similar problem in that the price is not a trait of a good. It's not something we measure. The price is the amount of money that I have to give up to get the good. So price is an amount of money it's stated in money but you don't measure the price in money. It doesn't exist apart from that money itself that's being exchanged. So this definition is problematic. Now, I think the more common definition would be that money is an IOU or money is a debt instrument, that type of idea. Stephanie Kelton, who's really become kind of the public face of MMT over the past few years especially with her book, The Deficit Myth, right? Okay, let's sort of side. If you don't want people to think that your view is that deficits never matter, you might not want to title your book The Deficit Myth and make it sound like deficits never matter. Okay, but so setting that aside, well one thing that she suggests, she affirms this money as an IOU definition in her paper The Role of the State in the Hierarchy of Money where she says that money is credit. It represents a debt relation, a promise or obligation which exists between human beings and cannot be identified independently of its institutional usage, okay? And then she quotes Minsky. Minsky said that everyone can create money. The problem is to get it accepted, okay? Now interestingly, Kelton, when she quotes Minsky here, actually corrects him, right? She says, no, no, no. If in fact, right, money is credit, right? For that credit to come into existence, it must be acceptable, right? You don't have credit come into existence unless you have a creditor and a debtor, right? So for the money to exist, it has to have been accepted at least by one person to start with, okay? All right, so I think it's fair to say that this is probably the definition that you would find most MMTists would adopt is that money is debt, money is an IOU, right? However, when you look at the hierarchy of money itself, this idea that we have some things that are more money than others, right? So state money is the most money, right? Then we have bank money below that in terms of moneyness and beneath that would be Engelhardt IOUs, right? Well, well beneath many other people's IOUs, right? Well, this suggests that there's another trait we're looking at, right? To figure out who's where in this hierarchy, right? What is that trait that is determining who's at the top, who's in the middle, who's at the bottom? It's acceptability as a medium of exchange, right? Now this phrase should sound familiar, right? Pretty sure Dr. Sandy Klein defining money, let's say money is a generally accepted medium of exchange, right? So we have modern monetary theorists saying money is debt, any debt, in fact any debt is money and it's by its very nature, but then we're measuring the amount of moneyness by acceptability as a medium of exchange, right? Maybe we should just swap out definitions, use the Austrian definition and then we're there, right? So let's think more about this credit money and this concept as well, right? So thinking about money is credit. So yes, credit instruments may be money, I'm even amenable to the fact that maybe the first medium of exchange actually was a credit instrument, right? The question is why is that credit instrument valuable? Well, the reason that any credit instrument is valuable is because of the promise embedded in it, right? The thing that is promised, right? Is what makes a credit instrument valuable in that first instance? And so the reason that you might accept that IOU five dollars from Engelhardt is not because you think that having this IOU is cool, I suspect it is not, right? Instead it's because you value the five dollars that it's underlying that, right? So this takes me back to a question I gave this talk two years ago and afterwards talking, I believe it was at dinner or something like that, I was talking to Dr. Herbner and he said, you talked about these tally sticks, right? I wonder, right, why did those hash marks signify? That was a unit, but a unit of what, right? There has to be something underneath that. Well, I did a little bit more research by which I mean I looked at Wikipedia. I literally looked at Wikipedia about tally sticks and they gave a really interesting story that I would expect the MMTs would love, right? And that it shows this great combination between the credit theory of money and the state theory of money when Henry I of England declared that taxes could be paid in tally sticks. This is great, right? We have the state stepping in, right? And saying, yes, we're going to use credit as a form of payment of taxes, awesome. And it even in that declaration from Henry I declared, right? What these units were counting, right? And you had different widths, right? So if it was the, I think it was the width of, like a palm, the thickness of a man's palm was the largest and that was a thousand pounds, right? That was owed. Then you got to a thumb, the thumb was a hundred pounds, a pinky was 10 pounds, I think, and then you had very smaller hash marks that were one pound, a shilling, a pence. So you notice there must have pre-existed the pound and the shilling and the pence, right? There was already another money circulating before tally sticks were then, you're given the stamp of approval by Henry I, right? So I don't know that we actually have very good evidence then that these tally sticks would indicate anything other than money, is what the historical record shows, and I would maybe we can hypothetically speculate that at some point they were used for commodities, but at the very least, these units had to admit something, right? And that's really the key. For it to be credit, something must be owed, right? So that's, I think, an issue with trying to act like this is credit money that was just abstract, totally disconnected from any kind of commodity. And it's actually the exclusion of commodity monies that is the next weakness, right? So you may notice they say everything is credit and then they just make the claim that fiat money, it's really just a form of credit, it just doesn't feel like it, right? But what about commodity monies, right? Now that they kind of try to exclude this by saying, well, we don't have any evidence of barter pre-existing monetary economies, what have you, but they even will go further. And saying things like Randall Ray says, this was in 2018, he says Bitcoin is not money, it can never be money, right? Which means given his definition, he recognizes it is not a debt instrument, it's never going to be a debt instrument, it is something else, right? But then we have some problems, because it turns out seven months after this was posted on YouTube, this talk, the state of Ohio said, we're going to accept Bitcoin and payment of taxes. So what's happening here, right? Now, now a year later we stopped because it turns out there was some suspicion about how the payment system was being set up and that there wasn't properly bid, that kind of thing. And the person that was very instrumental in trying to set that up had left office, so it hasn't come back. But nonetheless, we see a government that says, yeah, you can pay, you can pay your taxes in Bitcoin, that's fine. And more recently, we have El Salvador has said, yeah, you can pay your taxes in Bitcoin, this is perfectly fine. Or we're giving that state stamp of approval to something that Randall Ray has said is not money and can never be money by its very nature. This seems like a problem, right? And in fact, I think it's interesting, El Salvador has also declared that not only can you use Bitcoin and payment of taxes, but it's a form of legal tender as well. So you have to accept Bitcoin and payment of debts. Okay, or we have other examples going back a little bit further. So I'm not going to blame Randall Ray for not foreseeing that seven months later, a government would say, yeah, you can pay taxes in Bitcoin, but I will blame him for not remembering that cigarette-based economies existed in POW camps. So is the cigarette just a credit instrument? I suspect not, it seems to have the nature of a commodity, I myself don't smoke, but I know that there are people that do find cigarettes useful because they plan to use them. So it certainly has this nature as a commodity and is used as a medium of exchange in POW camps. So this is totally excluded from their theory just by the definition that they use. And then they're very explicit about this as well. So now let's get into what is perhaps another kind of a fundamental theoretical problem. So I've picked on their definition being too narrow. So what's a fundamental theoretical problem that comes out of their monetary theory? And that is the question, how do we establish the purchasing power of money? And this is a problem that they inherited from Georg Knapp with the state theory of money. And Mises dealt with this in the theory of money and credit. So let's compare the stories. So we'll start with the mangrove Mises story. So the purchasing power of money comes from the supply of money and the demand for money. Now we have to remember that when we talk about the demand for money, it's not just that people want money in kind of some generic general abstract sense, rather it's that we want a specific amount of money. So the way that I determine, say, in a specific transaction, how much money I'm willing to accept or how much money I'm willing to give up is that I have some sense from history of what this money could get me. And so this historical understanding of what this is used for in exchange. Since I'm planning to use this just in exchange in the future, I need to know what can it exchange for. So this is no problem. If we're moving from barter into a monetary system, that's something that can happen very smoothly. If this was a commonly traded good, I know what it traded against in the past. So I can just hold on to it. I don't have to use it directly. And then I'll just trade with it in the future. Okay, so we can get to an idea of the specific purchasing power of money and have that in our minds based on history if we are moving from barter into a monetary system. But what if instead we adopt this kind of analogy that I gave in the past or this parable from the past where the government is paying all of our soldiers and I'll use then the soldiers go out and try to buy goods from the people. So a soldier comes to me in my Apple stand. I say Apple stand because I do actually grow apples. I couldn't sell any of them, I assure you. But I have apples. So soldier comes to me and has these IOUs that it just received right from the nobility or whoever it was that was in charge here. It says, well, you know the tax time is coming. You're going to need some of these. Okay. But then we need to figure out how many of these IOUs should I receive in exchange for that Apple. It's not clear to me. We don't have any history. Have any sense of, okay, well, I don't know how many soldiers are going to come by for me to be able to get enough to pay my tax bill. I don't have a sense of that. I don't have a sense of what I could do with these or nobody else has ever used them before. So if I end up with more than I want, what do I do with the excess? So how can I spend them? I have no sense. And similarly, a soldier doesn't have a sense of what these would be worth or what they should be worth, how many apples they should be able to receive in exchange for these IOUs. So trying to introduce this money into the system from nowhere that has no history in terms of its purchasing power is going to, let's just say, be extremely difficult. There's no foundation here. There may be a general foundation for, yeah, I know that I need some of this stuff, but knowing that I need some of this stuff at tax time is not enough to tell me in any specific exchange how much I should be willing to accept or how much I should be willing to give up. So that's an issue in trying to establish the purchasing power of money. Now another question that I have connected with that is do we actually have any historical evidence? And here I'm just saying, I don't know, it might possibly exist, but I suspect it doesn't. Of any fiat money coming into existence that is not tied historically to some commodity. So when I think about modern fiat monies, things like the dollar, we can track back, actually we don't have to go back very far to find a tie to a commodity. So we know the US dollar was tied to gold, common ordinary people. You go back into the 1920s, you could in fact exchange paper dollars for gold, it was gold backed. And that gold is something that is actually useful. My wife assures me that gold in fact does have value from direct use. So we have this tied to a commodity. Similarly, even if we look at something as complex as the Euro, so the Euro, how did it come about? Well, it was based on this combination of European currencies or this basket of European currencies under the European Monetary Union. And each of those, going back just a few years prior was tied to the dollar through the Bretton Woods system, which was tied to gold historically. So we can trace back to gold. And I don't see any cases of fiat money just popping into existence, people then spending it and it has no previous tie to some kind of commodity. So now let's finish up by talking about a practical issue. Let's look at what would happen if we do in fact accept modern monetary theory is true and plan the government budget along these lines. Now here's where I say, I mentioned early on that it does seem like MMT is having more influence. And at least one side of it I think is. And this idea that we don't have to ask the question how we're going to pay for it. I noticed that was a question at least from what I heard over the past year when we had all these COVID stimulus bills coming through. I heard shockingly few people say, where are these trillions of dollars coming from? Well, we're just going to create them. We kind of all already understood this, which is an interesting thing that at least that part has already seemingly been embedded in our psyche, at least among those that are making these decisions. So I would expect very much like we saw over the past year, the government's going to spend more. It feels less constrained. It doesn't have to think about, how are we going to pay for this? I don't have to think about the unfortunate reality that I may have to raise taxes to pay off this debt down the line. In fact, you don't have to. Just spend it into existence. You may have to raise taxes if we end up with inflation possibly. But we don't have to worry about that till it happens. So what happens? Well, let's focus then, because certainly remember what Randall Ray told us, they would not actually advocate the government to spend willy-nilly on anything it wants to. I'd rather let's focus on that job guarantee program first. So think about that job guarantee program. Now, in this case, we have unemployed resources, specifically unemployed people, we're just employing those. Surely this is a good thing. We are taking resources that are not being used at all. In this case, people's time, which is totally being wasted since they don't have a job. Now, I don't know how you feel about your leisure time, but I feel differently. But their time is totally being wasted because they don't have a job. We're losing this resource every minute that people are not employed. So that's the view that they adopt really from Keynes, ultimately. This is where this comes from. And it turns out there was a response to Keynes that came from Hutt in the form of his book, The Theory of Idle Resources, where he provides a number of explanations for why is it that we would find these idle resources or resources that at least appear to be idle from an external perspective. And he suggested a number of reasons. I'll just mention two of them that I think are particularly relevant to a job guarantee. One is what he calls pseudo-idleness. So the idea of pseudo-idleness is that we have, say, he has in mind things like day laborers waiting in the town square to be picked up to work construction, that kind of thing. So if they happen to spend a day sitting in the town square not actually working, they sure look idle. But he says, no, they're not really, because what we want from an economic perspective is for them to be available if we need them. That is why they are there. Why is it that McDonald's has people that are working at three o'clock in the afternoon in a small town? They're probably not serving very many customers, but we need to have them there. Just in case somebody shows up. So in that case, we're paying them for that time. In the day laborer's case, we're not paying them during the time they're not working. So how do we make up for that? We pay enough on the days that they are working to get them to show up knowing that sometimes they won't end up working. So this is a form of pseudo-idleness. They're not actually idle. Instead, they're being kept in reserve on those days that they aren't actively working. There's also the problem of preferred idleness. This is where I talk about things like leisure. So you might look at somebody like my grandmother who's over 90 at this point. She doesn't have a job. She's holding down the employment population ratio. I can assure you she is not upset about this fact. She's perfectly content, right? So she doesn't want a job. Sometimes we do actually prefer idleness. We call that retirement at a certain point in our lives. Other times we call it vacation or the weekend. None of these terms have negative connotations to the people enjoying the thing. So we do have preferred idleness. So it might be that some people just don't want a job at a particular point in time and that's not a problem. But from an external perspective, if all we're doing is looking at employment population ratios and the data, it looks like, oh no, people have fleed the workforce. This is a terrible thing. It's not necessarily a terrible thing if it was what they actually wanted to do and what satisfies their own goals for their lives. So that's one issue that comes up. Things that appear idle may not in fact actually be idle. But let's set that aside. So we'll give them more of a chance. Let's suppose that these are actually genuinely idle, involuntarily unemployed, to use the Keynesian term workers that would in fact like a job and will happily jump up and grab one of these job guarantee jobs. Isn't this good for the economy? Well, a couple problems with this. So one is that generally speaking, if you're employing resources to produce something, you need more than just one resource. If you're going to have these people do something, you probably need more than just the person in their time. If nothing else, you need transportation to get that companion from wherever they live to wherever the elderly person lives that they're taken care of. You need this additional complimentary resource, these capital goods, in order to direct to the usage in order to actually produce with these people. Now there is an exception I thought of that is one of the things on Randall Ray's list was artist. So he had in mind paint murals downtown, that kind of thing. And we do know nowadays that it is possible for artists to make invisible sculptures. So that might be a case where the labor alone is sufficient to produce whatever they're going to produce. All right, but in all other cases, we're going to have to get other resources in order to actually get these people doing something. And that is a big part of the job guarantee. They don't want to do a universal basic income like some people suggest. They actually want people to be doing actual work and producing something, which is going to require other resources. Once it requires other resources, now we run into that resource constraint problem. So the government has to get these resources to actually employ those people that they're trying to employ. And that means bidding against the private sector. And now we're back with the NASA problem. And so we need to get say this car, we need to get gas in it. We know that those prices are going up at the moment, interestingly. So we have to get all of that to transport people to where we need them to be to do the jobs they're going to do. Even if the job itself may just be physical, I'm just human. So now we're taking resources from the private sector. We're bidding against the private sector for these resources, prices start rising. Now we have to face a choice. Prices are going up. Now, textbook MMT says, in that case, we need to start taxing more. Prices are going up. We start taxing more. Of course, we know once we put in these taxes that drains resources from the private sector, taxes create their own forms of inefficiency in the way real resources are used. And in fact, according to Ray, this quote I thought was very interesting. He says that taxation decreases the ability of the private sector to compete with the government for resources, which is a fascinating statement. And what is he trying to do? We're moving more toward an economy which is directed by the government. Ultimately, the government is the one that has claim over these resources and it just keeps having to compete with the private sector to actually be able to use them. And isn't that inconvenient? So that's one path we can go down. We can follow textbook MMT, increase taxes, which is going to create additional inefficiencies in the economy, and in fact, increase the size of the government, the influence of the government over the economy. Sounds like we're on a path leading toward heavily centrally planned economy, socialism. That's the path we're heading down that way. Now, alternatively, it's been interesting for me watching over the past couple months as we've been seeing prices are going up. So what are our MMT folks saying? Well, it's mostly Stephanie Kelton that's actually out there saying things and she's very much in the, this inflation is transitory camp. We don't actually need to do anything about it. Let's just wait it out. And I think it's very possible you might actually see that in practice that is what actually ends up happening. Even if we do end up with the point where the MMTs do it from a unified front say, let's go ahead and increase taxes. We still have to convince politicians and suddenly we find out MMTs aren't popular anymore. So we have two paths we go down. We follow the MMT textbook, we raise taxes and we are on the path in a socialist direction or we don't raise taxes and we're in an inflationist direction. Neither of those is a path that I particularly want to go down. Thank you.