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.)

Labels: ,


Anonymous Anonymous said...

Hey, keep going, nice post. We need all the help we can get while the incredible theo-classical insanity continues.

On the positive side I think we might be nearing a critical mass.

Sun Aug 07, 01:43:00 PM  
Blogger Calgacus said...

Thanks for the kind words, Anonymous. Just put this up a day or two ago, though its dated July 4 from an earlier version.

Thu Aug 11, 09:59:00 PM  
Anonymous human mathematics said...

Nothing else to understand about all commerce? Now that's a bit grandiose. Even GR limits its purview and it has tensors.

Sat Sep 10, 10:23:00 AM  
Blogger Calgacus said...

human mathematics: When you make a mistake as fundamental as not thinking of money as what it is, a credit/debt relationship, sure - things will look complicated.

When I say "three words" - what I mean is that the conceptual reorientation can be boiled down to that.

GR doesn't really limit its purview - it counts all the physical stuff, all the mass-energy that is there, including gravitational fields.

Consider your blog post of a year ago - don't know if it still represents your views:
Why are Treasurys considered "Risk Free"? If you understood money as credit/debt, as brownie points, then your question would be answered. You would understand that exchanging dollars for treasuries is not borrowing. That higher deficit spending lowers interest rates rather than raising them. That bond-holders do not dictate interest rates - they have as much power over them as they do over how many ones you get for a five.

Fri Sep 16, 01:40:00 AM  
Blogger The Arthurian said...

Hi Cal. Meant to stop by before now.

You write:
"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."

Okay, so they're not *exactly* the same if the arrow is pointing a different way, right?

Sun Sep 18, 12:49:00 PM  
Blogger Calgacus said...

They refer to the same thing, a credit/debt relationship. They are used differently. You can't mindlessly replace one word with the other. But you can translate any sentence involving "X has a debt owed to Y" into "Y has a credit on X" & vice versa.

Somewhat like "stage left" being the same direction as "audience/house/camera right", just described differently, from a different perspective.

Sorry didn't reply earlier. You're always welcome.

Thu Sep 29, 01:50:00 AM  
Blogger The Arthurian said...

I think (but I am not sure!!) that what you call a "relationship" is what I call a "transaction". It involves two "actors" and a vector: quantity and direction... Like money tied to the arrow.

But I distinguish between transactions made WITH money (which are completed in the present) and transactions made FOR money (which are completed in the future).

Your move.

Sat Oct 01, 01:28:00 PM  
Blogger joebhed said...

Why don't we take up here on your blog whether all money is debt?
As you failed to respond at RMMs.
Ready when you are.

Thu Aug 09, 06:02:00 AM  
Blogger Unknown said...

Money is debt or equity. Any of the two.

Mon Aug 05, 07:14:00 AM  

Post a Comment

<< Home