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Fiat Currency Is Not The Reason Things Are Expensive

Tthe claim that fiat currency’s existence alone is the entire reason every one of us besides the wealthy has diminishing purchasing power is incoherent as a matter of logic and not true in any meaningful sense. Legal scholars, academic economists, and central bank economists understand this despite what the Elon Musk anti-statist death cult would believe. Virtually nobody who studies debt and currency today (or modern monetary functions) nor anyone whose career is producing scholarship on the matter (interacting with the material every single day like MMT economists/economic historians/anthropologists) or conducting empirical surveys, doubts that the role of fiat currency is essential to an otherwise well-functioning economy. It is the engine behind all transactions (even behind crypto) as a medium of exchange and the only legal money accepted to satisfy debt tax obligations. Legal histories of both American public finance and of money as well as the role of debt for the last 4,000 years substantiate this.

The claim that strictly because of the existence of government’s monopoly power to issue our currency means the price of everything that you use currency for (purchase/satisfy debts/tax obligations) autonomously causes expensive living standards and goods has no basis in the legal or social realities of our money. There is no direct link. In fact, the reason why the United States enjoys the strict capacity to deficit spend in order to pump money into the economy is precisely because we enjoy monetary sovereignty (that is, can print our own dollar and except no other payment to satisfy tax obligations). But this does not implicate a causal relationship between issuing currency and diminished purchasing power.

As MMT economist and Professor Stephanie Kelton (among others) has noted, the U.S is a currency issuer as opposed to a currency user (like you and I and everyone else not authorized to legally print the dollar), which means the U.S can finance whatever project it wants and can literally never run out of money. It can always afford to pay its obligations as they come due. The tired and false economic wisdom and popular myths of economics insist that the value of the dollar is wholly dependent on the supply and demand of dollars. More importantly, it is the existence of taxation, which implies the need to control inflation, that determines that value of money and the intensity of inflation (controlled by how much money is taken out of the economy through taxation). The dollar’s value to you and I is not how much is in circulation, but rather a value derived from the government’s capacity to tax and the subsequent obligation that we all must pay. And if you spend too much into the economy without taxing an appropriate amount back, a certain amount inflation may occur, which tells us generally how much more expensive things have gotten over time, but that does not mean that the ability and authority to impose a tax obligation automatically, as if by some natural law, triggers increased price levels or diminished purchasing power. This means that the capacity and authority to both tax and spend is not why things are so expensive. The erroneous notion that because our government enjoys the characteristic of monetary sovereignty automatically means inflated prices attempts to make no connection behind the functions of monetary operations. What is more telling, a more glaring indicator of reduced purchasing power over the last 50 years, is the total erosion of minimum wage and other economic and political factors (like the utter dominance of monopolies have over economic life as well as the destruction of unions and critical social safety nets).

To replace fiat currency and the power it gives us to improve our material conditions in the U.S with a disjointed and unprotected type of cryptocurrency (that essentially amounts to a stock with an unilateral value rooted in how much people want to buy from you) is not the magical elixir proponents of Bitcoin would have you believe. The ideas and insights MMT offers is already a historically and economically realistic opponent to mainstream economic wisdom that would restrict our capacity to have nice things like ending homelessness, green infrastructure, a job guarantee, or universal basic income (and indeed it has for far too long).

The state is the only entity with the capacity to make these political and material changes. It is literally impossible to live a disjointed and disembedded economic life totally independent from the rest of economic society, with the hope to singularly change our current socioeconomic paradigm with bad ideas based off of extremely limited knowledge which is usually ahistorical and unfounded anywhere in modern economies. The ethical duty of our government, or any government for that matter, is to take care of its citizens. The utter failure to do so over recent decades is not because the government itself is toxic (which is a thin argument and lazy proposition itself), but because of the way our existing institutions from the Supreme Court to voting to policing to policymaking have been captured by the wealthy and the powerful.The only obstacles to a better future right within reach are strictly political (not monetary), and that is why we must elect progressive leadership who understand these imperatives.

There is no reason to be scared of fiat currency. It is in fact why the U.S can afford anything it needs. The now abandoned gold standard already proved why tying our money to something that we can run out of, something limited like gold or stock or crypto, is an extremely bad idea which limits our country’s capacity to improve material and socioeconomic well being.

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