Monday, July 04, 2011

Economics (aka MMT) in Three Words

Money is Debt

MMT "Modern Monetary Theory" is a three word theory, like General Relativity, but a lot easier. You can say it all in one three word sentence, like "Gravitation is Curvature". Once you really understand THE SENTENCE, you understand MMT. There is nothing else to understanding Economics in the real world = Monetary Economics = MMT.

If you don't try to understand the SENTENCE, Calgacus will whup you upside the head with a Grecian urn. Repeatedly. Until you get it.

"Money is debt" is true absolutely, metaphysically, transcendentally, eternally, wholly, utterly , subjectively and objectively. Like any subject, once you understand its (rarely spoken) trivialities, its philosophy, its (objective) logic, dare I say its metaphysics? -everything afterward is child's play, intuitive. In fact, much of the modern school of MMT & Circuitism etc just rediscovers once well-known ideas. Though of course it has gone beyond most of them. Some of the most interesting predecessors don't seem to have been redigested yet, though.

A couple preliminaries: Credit = Debt. These are two words for the same thing. It's as if we had two different words for an arrow, one if it is pointed to you, one if it is pointing away. So an alternative would be to say "Money is Credit". Synonyms that don't have this asymmetry are "favor" or "promise". So "Money is a favor" or "Money is a promise" mean much the same. But the other words don't have the punch-in-the stomach reality of "Debt" so now I prefer "Money is Debt". Or "Money is brownie points" if one wants the opposite connotations.

An extremely important thing about promises, favors, credits, debts: They are obviously relationships between two people. They are obviously not things, like rocks, or even a legal claim to a rock. Aside from the MMT/chartalist/creditary/state theory of money, the only other theory is the commodity/Austrian/neoclassical/metallist theory that money is a commodity, a thing. It is the worst scientific theory of all time.

"Debt" is not "money owed". Debt is the primary concept, left undefined, at least initially. "Debt" comes first. The concept of Money is defined in terms of the concept of Debt, not vice versa. Ethologists see the idea of debt even in chimps - if I do you a favor, you owe me one in return -in giving a banana, in helping one chimp beat up another chimp. Money is nothing but a vast system of Brownie Points regulating the movement of real goods and services.

An agreed-on money is a standardization of debt - it is a measure of debt. We use number systems - positive and negative numbers, rational or real (not really, we don't do infinite precision) to operate with this debt standardization. It is exact, because we make it exact. If we wanted to, we could just decree that 1 million could be the largest amount we use, so 1 million "+ "1 million = 1 million. We would just be using a different number system, and it would be exact with that alternate system.

The core, the confusing things, the obstacles that people have to learning MMT are things that WE ALL KNOW ALREADY. MMT can be understood by the Socratic method. Everyone knows MMT already. The ideas are implicit to human cognition. But "Was ist bekannt ist nicht erkannt".. .. .. (Wrote this, along with quite a few more posts, but knowing myself, think it better to "publish" it unfinished now to give me a kick in the pants.)

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