great article Leah, thank you! I just read the New York Times article written on this very subject by the economist, Stephanie Kelton you quote. If the New York Times was prepared to print an equally controversial article that confirms everything you have said, by a former chief economist for the Senate Budget Committee, then I'm a total convert. You can't argue with that. This article should be printed on millions of little pieces of paper and dropped from the sky aright across the UK! Bravo Leah.
Sometimes, a simple analogy is all that is required to make a point. Let's examine this business of money and currency via the medium of pizza.
Imagine a situation where you and your partner cook pizza for dinner each Friday night. You always cook one pizza and you always slice it into 6 slices, each of you taking 3 slices which is just the right amount of pizza. To simplify the record keeping of how many slices there are and how many each of you has eaten, you create 6 slips of paper, each of which bears the legend "I promise to pay the bearer, on demand, one slice of pizza". We're calling these slips "pizza pounds". Each PP is a receipt or a claim on a single slice. You 'buy' each slice by handing over the slip, which is then destroyed and taking your slice of delicious pizza. At the end of the meal, there are then no pizza pounds left, and only crumbs on the pizza plate.
One evening, just as you're about to eat your pizza, a friend calls round, and he looks hungry. He eye's up the pizza wordlessly, and you take the hint and offer to share the pizza three ways. To solve the problem of pizza supply and demand, you have a bright idea. With now 3 people needing pizza, and 3 slices being the required meal size, you create 3 x 3 pizza pounds. Now you have 9 pizza pounds, 3 per person, as before. You slice your pizza into 9 slices. Now, my question is this: is the meal as filling as normal?
What's that? No! Surely not. You mean to say that just creating more pizza pounds did not increase the size of the pizza itself? It cannot be!
So what happened here actually, and how does it relate to money and currency. Well, you increased the size of the currency supply by 50% which was your inflation rate. However, all this did was to make the spending power of each currency unit (the pizza pounds) smaller. Each pizza pound bought less pizza than before. The pizza itself went unchanged - the pizza was the tangible goods of actual value.
This is fundamentally what the difference is between money and currency and why MMT is just plain wrong. Yes, you can increase the currency supply by whatever amount you want, and all this achieves in practice is to devalue it against real assets (inflation). It DOES NOT increase the value of anything in the economy. If you want more money (pizza) you have to produce it. Simply making each slice smaller does not increase wealth.
Thanks, very interesting. I watch Richard Murphy's videos, haven't read his blog for a while.
Human greed is winning, inequality is off the scale. Money is a very strange concept when you really think about it, the system of money needs reform or it will be the death of humanity, sadly.
Thanks, Leah.
You're welcome!
great article Leah, thank you! I just read the New York Times article written on this very subject by the economist, Stephanie Kelton you quote. If the New York Times was prepared to print an equally controversial article that confirms everything you have said, by a former chief economist for the Senate Budget Committee, then I'm a total convert. You can't argue with that. This article should be printed on millions of little pieces of paper and dropped from the sky aright across the UK! Bravo Leah.
great to have such a detailed explanation.
Sometimes, a simple analogy is all that is required to make a point. Let's examine this business of money and currency via the medium of pizza.
Imagine a situation where you and your partner cook pizza for dinner each Friday night. You always cook one pizza and you always slice it into 6 slices, each of you taking 3 slices which is just the right amount of pizza. To simplify the record keeping of how many slices there are and how many each of you has eaten, you create 6 slips of paper, each of which bears the legend "I promise to pay the bearer, on demand, one slice of pizza". We're calling these slips "pizza pounds". Each PP is a receipt or a claim on a single slice. You 'buy' each slice by handing over the slip, which is then destroyed and taking your slice of delicious pizza. At the end of the meal, there are then no pizza pounds left, and only crumbs on the pizza plate.
One evening, just as you're about to eat your pizza, a friend calls round, and he looks hungry. He eye's up the pizza wordlessly, and you take the hint and offer to share the pizza three ways. To solve the problem of pizza supply and demand, you have a bright idea. With now 3 people needing pizza, and 3 slices being the required meal size, you create 3 x 3 pizza pounds. Now you have 9 pizza pounds, 3 per person, as before. You slice your pizza into 9 slices. Now, my question is this: is the meal as filling as normal?
What's that? No! Surely not. You mean to say that just creating more pizza pounds did not increase the size of the pizza itself? It cannot be!
So what happened here actually, and how does it relate to money and currency. Well, you increased the size of the currency supply by 50% which was your inflation rate. However, all this did was to make the spending power of each currency unit (the pizza pounds) smaller. Each pizza pound bought less pizza than before. The pizza itself went unchanged - the pizza was the tangible goods of actual value.
This is fundamentally what the difference is between money and currency and why MMT is just plain wrong. Yes, you can increase the currency supply by whatever amount you want, and all this achieves in practice is to devalue it against real assets (inflation). It DOES NOT increase the value of anything in the economy. If you want more money (pizza) you have to produce it. Simply making each slice smaller does not increase wealth.
Thanks, very interesting. I watch Richard Murphy's videos, haven't read his blog for a while.
Human greed is winning, inequality is off the scale. Money is a very strange concept when you really think about it, the system of money needs reform or it will be the death of humanity, sadly.
Here's the New York Times article if anyone is interested. You can create a free account to read it. https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-trump.html#