In physics discussions I like to make the point that epicycles were brilliant math, but lousy physics. The problem wasn't that the details hadn’t been worked out, but that something very large was being overlooked.
With economics, I think the central point being overlooked is that money is a contract, not a commodity. Even though we may experience it as quantified hope and try saving and storing it as such.
Econ 101 teaches that money is a medium of exchange, store of value and price setting mechanism, though the last is a function of being a medium.
What the profession doesn’t seem to get is that medium and store are very different functions, as one is dynamic, while the other is static. Blood is a medium, fat is a store. Roads are a medium, parking lots are a store. The hallway is a medium, the hall closet is a store. If your child confused the two, would you point it out? How about a doctor, or a highway engineer?
As medium, money enables mass societies to function, but because it is quantized value, it makes a handy marker for how our brains function. The signal in the noise of everything else. Yet noise is the context in which the signal exists. The network that gives the node purpose.
So it is natural to save it, yet because it largely functions as a contract, with one side an asset and the other a debt, creating the asset requires similar amounts of debt. For one thing, this creates a centripetal effect, as positive feedback draws the asset to the center of the community, while negative feedback pushes the debt to the edges. Since finance functions as the value distribution mechanism of the community, it’s like the heart telling the hands and feet they don’t need so much blood and should work harder for what they do get. The Ancients used debt jubilees to reset this dynamic, but we don’t have that long term perspective.
The other effect is that government has become debtor of last resort. Where would those trillions go otherwise? Could Wall St. function, without the government sucking up so much surplus cash? There are more limits to profitable investments, than people’s desire to get and stay wealthy.
The fact is that as a publicly supported medium of exchange, US currency is a public utility. Our individual picture is not on it. We don’t hold the copyrights and they are enforced. We are not the ones responsible for maintaining its value. As the functionality of money is in its fungibility, we own it like we own the section of road we are using, or the fluids passing through our bodies.
Logically Paul Volcker did not cure stagflation with higher interest rates, because that mostly reduced the flow of money to those most likely to use it to grow the economy and increase the need for money. It was Reaganomics.
One of the main ways the Fed does draw money out of the system is to sell debt it bought to create money. So the only real difference between the Fed selling debt and the Treasury issuing more debt is this money can be then spent into the economy, in ways to ‘prime the pump.’ Much of which was military spending, as that did not compete with the private sector for actual profitable investments and expanded the size of the economy. Basically a jobs and industrial program. Which might explain why we can have endless, strategically inept wars and no one is held responsible, if their primary function is to spend money, in order that more can be borrowed.
Though infrastructure might have been a wiser investment, but not as glamorous.
Just as a hypothetical, what if the government has to threaten to tax out what it currently borrows? Obviously not going to happen, but if an inexhaustible supply of debt can’t be created, then we couldn’t all save for the future, through our bank accounts.
We all save for many of the same reasons. Raising children, housing, healthcare, retirement, etc. If these could be invested in directly, as community assets, than everyone trying to save for them individually, with bank accounts as our personal umbilical cord, maybe we wouldn’t have such atomized societies and poisoned environments.
The irony of our individualist ethos is this atomized culture is more easily controlled by institutional authority and mediated by a bloated, metastatic financial system. Networks matter as much as nodes.
It is not that society should be dominated by either the public, or the private sector, but that both serve different functions best. Much as a house has family and personal spaces.
Not that banking could be a direct function of government, as politicians live and die on the hope they inspire, so printing more money has always been a dangerous patch. Like the head and nervous system, government is the executive and regulatory function, while finance is the heart and arteries.
There was a time when government has private, yet when the monarchs lost sight of the fact they served a function, in order to be served by society, they were usurped. Banking appears to be having its ‘let them eat cake’ moment.
Safe to say, we have been living on debt drawn from the future and the future is arriving. Just ask the environment, or those students struggling under college loans.
