Painful absolutism

In previous videos I have explained that money is not asset-backed now. The only thing that gives money its value is the government’s promise to pay.

No. One of the things that gives money value is the promise to pay. But not the only. Bitcoin isn’t a very good money, it’s not all that convenient etc. There is no government promise to pay yet it has value. QED.

In this video I explain that the limit on the government’s ability to create money is not now the amount of gold it has, but instead the resources it can command in the real economy that it manages. Those resources are at their limit when there’s full employment – and for that reason full employment is now the point where the limit to money creation is reached.

No, full employment is a limit, not the limit.

Venezuela has inflation, Venezuela does not have full employment. QED.

It’s the painfully misplaced absolutism that jars…..

7 thoughts on “Painful absolutism”

  1. The only thing gives money value is people’s willingness to accept it in commerce. And that sentence contains all you need to know about the subject.

  2. @BiS +1

    …and what ultimately gives government-issued money (some) value is that government’s willingness to accept it in payment of tax.

    (I don’t know why Murphy persists with his “promise to pay” formulation, which makes no sense. Perhaps he thinks it makes him sound like a central bank?)

  3. @Cadet
    No. That statement isn’t true, either. That would depend on people’s willingness to accept a government’s money in exchange for supplying it with goods & services. If they won’t, then tax in that currency is irrelevant. It won’t raise anything that buys anything.

  4. The only thing that gives anything value is the value a person puts on it.

    We all tacitly agree that money has a value.
    We do this to facilitate life and society.
    You could equally use acorns, leaves or sheep as a currency if you want, though they wouldn’t be as convenient, but would have advantages.
    The government couldn’t magic up a few billion extra sheep overnight for example…

  5. @BiS

    While the Zimbabwe govt accepts Zim$ in payment of taxes (and can put you in jail if you don’t pay) then the Zim$ will derive (some) value from that acceptance. Granted, it may well not be used for much else, for the reasons that you imply.

    In the past the convenience of having an agreed-on currency allowed governments to get away with fairly serious monetary mismanagement before there was significant replacement of the Zim$ by the US dollar or cigarettes. Much less true now if people can shift easily to e.g. mobile phone credits.

  6. Dear Mr Worstall

    ” … in the real economy that it manages.”

    Perhaps he is missing a “mis” there.

    The best form of government economic management is none.

    When asked by a doctor if I was allergic to anything I replied “government and bureaucrats”. She responded: “I have the same problem with managers.”


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