“I mean, the government definitely prints money, and it definitely lends that money, which is why the government definitely prints money, and then it lends that money by, uh, by selling bonds.” Words that launched seemingly thousands of Tweets. The individual behind the previous sentence, or stream of non-consciousness, is no less than Jared Bernstein, Chairman of President Biden’s Council of Economic Advisers.
That Bernstein mistakes what money is amounts to a statement of the obvious, but what’s equally obvious is that the vast majority of Bernstein’s critics don’t understand money themselves. Still, we will start with Bernstein. He’s putting the cart before the horse. He ignores that no one buys, sells, lends, or borrows with money. As I stress over and over in my book The Money Confusion, underlying all money movements is the movement of actual goods, services and labor.
At which point government doesn’t lend or borrow money as much as our federal government has taxable access to the production of the most productive people on earth, hence its ability to borrow and lend in enormous amounts. If the “government” in Bernstein’s rendering didn’t have legal title to the production of the American people, the money notion that the CEA head mangled would be moot.
To see why, imagine if Haiti or Peru tried to lend or borrow in the way that the U.S. Treasury does. Readers can rest assured that the “printing” of the Haitian Gourde or the Peruvian Sol would in no substantive way increase the consumptive ability of those who borrowed the printed currencies, nor would it enhance the ability of those countries to borrow.
If you’re confused about the above, ask yourself if you would exchange goods or services in your possession, or your own labor, for the Sol or Gourde. Hopefully the question answers itself. All money exchanges are once again product, service and labor exchanges. Which is why “printing” money isn’t the same as creating demand, nor is “printing money” or expanding the so-called “money supply” the same as a government expanding money in circulation. In actual markets as opposed to the theoretical ones imagined by economists, products, services, and labor exchange for products services and labor; money the measuring stick that facilitates the transactions.
Which is a reminder that the money circulating among actual producers is a consequence of production, not an instigator of same. Production takes place, hence the money circulating to facilitate the exchange of the production. Contra the monetary mystics of the various economic schools, money in circulation is an exacting market phenomenon simply because no one brings goods, services and labor to market in order to get much less in return. Which is why the money in our pockets that actually commands goods and services is always and everywhere difficult to come by for the individual, but less so for governments with easy legal access to what’s in our pockets.
Back to Bernstein, the U.S. Treasury can’t “print” as he imagines as much as it has access to our production, hence its ability to “print.” Bernstein yet again puts the cart before the horse. Of course, he’s not alone in equating “money printing” with an ability to demand, or to lend or borrow.
Think Austrian School eminence Guido Hulsmann. He promotes the same Modern Monetary Theory fiction offered by Bernstein. In Hulsmann’s words, “…fiat money allows the government to take out loans to an unlimited extent because fiat money by definition can be produced without limitation, without commercial limitation or technological limitation, and can be produced in whatever amount is desired." No, not really. To borrow is to borrow goods, services and labor, and the latter is limited by one’s ability to produce goods, services, or labor or, in the case of government, the latter’s taxable access to the fruits of private producers.
Beyond the Austrian School’s rather explicit belief in the falsehoods promoted by Bernstein, can we stop and consider the broad focus of the various economic religions on the Fed, and what it will do (25 basis points up, or 25 basis points down…) with “interest rates”? Talk about obnoxious conceit! Yet Paul Volcker hagiographers on the supply-side right, Milton Friedman-worshipping monetarists, and the central-planning reverent on the Keynesian left all track the Fed and its rate fiddling with breathless anticipation. All three subscribe to central bank planning of the cost and “supply” of a unit of measure (money) that would make the Five-Year Planners in the old Soviet Union blush, yet Bernstein is the punchline?
Which is just a reminder that foolish as economists can be, the problem is not Bernstein. The problem is “economics” itself. In other words, if you’re laughing at Jared Bernstein’s misunderstanding of the subject that you have a PhD. in, you’re likely the butt of the joke yourself.
