The cash only economy where economics works
Debunking Economics - the podcastJanuary 01, 2025x
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30:1520.92 MB

The cash only economy where economics works

This week Phil introduces Steve Keen to the fictional island of Cornucopia. It’s a simple place, where the only trade takes place with gold coins. Banks are not allowed to give loans, and the money supply remains constant, unless the Chancellor decides to mint new ones. In such circumstances, how many basic economic principles work? Most of them, it seems. Sadly, this is not the real world, and economists who practice double entry book-keeping are imprisoned. Until the Chancellor realises there’s no growth and seeks help. To be continued.

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[00:00:36] If you think 3,000 sounded insane, how about 40,000? Because somebody asked me, well, what would it take to set gold behind the currencies like we're seeing what's happening in Zimbabwe?

[00:00:49] This is the Debunking Economics Podcast with Steve Keen and Phil Dobbie.

[00:00:56] Well, gold investors are always trying to push up the value of gold, of course, perhaps because they've got so much of it themselves.

[00:01:01] But imagine a world where gold was used for coins and the only currency was coins made of gold.

[00:01:10] We've talked a lot in recent weeks about fiat money and money creation and how that distorts the views that traditional economists have about how the economy works.

[00:01:18] So are their views spot on if we had a coin currency based on the value of gold?

[00:01:26] And that was it. That's this week on the Debunking Economics Podcast.

[00:01:37] So imagine an island cut off from the rest of the world.

[00:01:41] I'm not talking about Britain since Brexit.

[00:01:43] I'm talking about a very remote island, miles from anywhere.

[00:01:46] It doesn't even know the rest of the world exists, a bit like America.

[00:01:50] But it is just in the middle of an ocean and they don't have any contact with anyone else.

[00:01:55] On this island, there is only cash, but it's all gold coins.

[00:02:00] So let's call this the island of Coinucopia.

[00:02:03] There's a million gold coins.

[00:02:05] The only way there can be more than a million is if the central bank mints more.

[00:02:11] But Rachel Reeves, her namesake, is the president of the central bank.

[00:02:16] She doesn't think minting too many new coins is fiscally conservative.

[00:02:21] So they only have the coins they've got.

[00:02:24] Nobody accepts banknotes.

[00:02:25] It's coins only.

[00:02:26] And nobody trusts each other on Coinucopia either.

[00:02:29] Everyone assumes that everyone else is up to no good because Nigel Farage has been the president on this island for a long time.

[00:02:37] So nobody trusts anybody, particularly foreigners, who they don't believe exists.

[00:02:41] So there we are.

[00:02:43] And the other thing is, Steve, on this island, anyone caught practicing double entry bookkeeping is sentenced to death.

[00:02:55] So yes, you don't want to be there.

[00:02:57] So it's a very simple model.

[00:02:59] When people get paid, they put money into the bank.

[00:03:02] The bank keeps it till they ask for it back, which won't be very long.

[00:03:05] They're just keeping it till they need it before the next payday.

[00:03:10] The bank isn't allowed to lend out money.

[00:03:12] Borrowing is only permitted between private citizens.

[00:03:15] So let's start with the very basic.

[00:03:17] In that scenario, we can ignore debt, can't we?

[00:03:22] Because it doesn't have any impact on...

[00:03:24] There is none.

[00:03:24] Well, yeah.

[00:03:26] I lend to you.

[00:03:27] And so, yeah, nobody picks up any...

[00:03:29] Well, I might be in debt.

[00:03:30] I might have personal debt to you.

[00:03:32] But as an aggregate, there's no debt on this island.

[00:03:35] Yeah.

[00:03:35] Well, I mean, that's actually a good point, that people can lend coins to each other.

[00:03:39] But you probably have a decent mafia trying to back up any loans that are made, so the rates would be really expensive.

[00:03:48] And then you could have coins, and that actually could create interpersonal debt.

[00:03:52] That would be effectively save as lending to borrowers.

[00:03:55] So that could happen.

[00:03:57] But there'd be no debt recorded at the banks themselves.

[00:03:59] Yeah.

[00:04:00] So, because, well, they're not allowed to borrow, lend out.

[00:04:03] So there we are.

[00:04:05] So in that scenario, no new money can be created, can it?

[00:04:08] Except for the central bank printing more.

[00:04:10] There's nothing that can happen to make more money go into circulation.

[00:04:12] Yeah.

[00:04:13] And in fact, this is actually a very, very, very nice little analogy, mate, because that is actually the foundation of the paper that introduced monetarism to the world, which was Milton Friedman's paper, The Optimal Quantity of Money.

[00:04:28] And he actually did pretty much what you've done just there.

[00:04:33] He invented a fictional world in which, in fact, he had notes rather than coins, but let's go gold.

[00:04:38] So we know we've got gold coins rather than pieces of paper.

[00:04:41] We're going to introduce notes later, but yeah, at the moment.

[00:04:44] But yeah.

[00:04:44] Yeah.

[00:04:44] And he said that in that world, there'd be a thousand coins.

[00:04:49] So I think it even shows the quantity, the same quantity.

[00:04:51] I know you haven't read the paper, so well done.

[00:04:55] So a thousand coins circulating in the society.

[00:04:59] And because, you know, the typical thing, you've been in a long-run general equilibrium.

[00:05:02] This island existed for a thousand years with only a thousand coins.

[00:05:05] All markets were in equilibrium.

[00:05:07] And then this is where the infamous helicopter comes in, and that is literally in Milton Friedman's paper.

[00:05:12] He says, let us imagine that a helicopter flies over this country and drops an extra thousand now and out of the notes in his paper.

[00:05:20] It'll be gold coins.

[00:05:21] So there'd be some cases of concussion, but, you know, progress does, of course.

[00:05:25] So they drop the coins out of the helicopter, and then everybody rapidly goes and grabs all the coins.

[00:05:32] And then they think they're twice as rich as they were beforehand, so they spend more.

[00:05:36] And what this spending does is it drives up economic activity, so people work harder.

[00:05:40] But they then find – and this is the typical neoclassical stuff.

[00:05:44] Oh, my God.

[00:05:46] There's no impact on productive resources.

[00:05:48] He actually imagined a world in which there were no capital resources, no capital assets.

[00:05:52] The only capital that existed in his model was the fictional capital, human capital.

[00:05:58] That's all he allowed for.

[00:05:59] Well, actually, that was the point I was leading to.

[00:06:02] So thank you.

[00:06:02] You fast-tracked us a little bit.

[00:06:03] But I was going to say the only way in this economy for the economy to actually grow is for money to change hands faster.

[00:06:10] Whether you inject new money into that makes people work harder or whether people just realize that they can work a little bit faster.

[00:06:16] And, you know, therefore they earn more money.

[00:06:20] And the productivity goes up.

[00:06:23] And obviously, you know, that keeps money out of the banks as well longer.

[00:06:28] The longer the coins – we've talked quite a lot about this, haven't we – that money moves slower when it's sitting in the banking sector.

[00:06:34] And even in this example, if the money's sitting in the bank, it's not out there in broad circulation.

[00:06:39] So that's not part of the money supply.

[00:06:40] Yeah, that's right.

[00:06:41] So things to do to make money faster, what could the chancellor or the president of the central bank, Rachel Reeves, do?

[00:06:50] She could limit how much money you can keep in the bank, for example.

[00:06:54] She could say you can only stay there for five days.

[00:06:57] What else could she do if she says, you know, we've got to get growth?

[00:07:01] You know, in this limited environment we're in, how could she – in a coin-only environment, how could she get growth?

[00:07:06] A good start is to be sack Milton Friedman because the mythical assumption he made at the beginning.

[00:07:12] This is – people – you have to read this stuff to realize how stupid it is because Milton set it up in such a way that there could be no increase in productivity if there are extra coins around.

[00:07:25] So if you had – what he worked out, he said he had 1,000 notes and people would hang on to 1 12th of – what they'd do, that money would turn over 12 times a year.

[00:07:38] So the GDP with 1,000 coins would be $12,000.

[00:07:42] And that's – he had a very high velocity of money.

[00:07:44] And actually he implied that from the ratio of GDP to notes in existence in America in the 50s when he wrote the paper.

[00:07:53] So he said a velocity of 12 of the turnover of these notes.

[00:07:57] We've now made them to gold coins.

[00:07:59] So with 1,000 coins in existence, the velocity of circulation being 12, GDP was $12,000.

[00:08:05] And the assumption which – this is the sort of assumption you make if you want to give an – impossible for the person you're discussing to to reach any other inclusion than what you want them to reach.

[00:08:18] And that was there's no – there's no capacity to change the level of capital in society.

[00:08:23] So this – if you –

[00:08:24] Okay.

[00:08:25] Even if you're talking about labor, let's talk about capital in a second.

[00:08:29] But say, for example, the money started to move faster.

[00:08:34] Everyone feels as though they're wealthier because the economy is moving faster now.

[00:08:39] The hairdresser, for example, is busier.

[00:08:42] There's more appointments.

[00:08:43] But the hairdresser still only has a limited amount of time.

[00:08:47] So even if you're just looking at labor, she's only got so many hours in the day to do people's hair.

[00:08:53] If money is moving around faster, people are feeling wealthier.

[00:08:56] She can't meet that demand because there's only so many hours in the day.

[00:08:59] So what does she do?

[00:09:00] Does she put her prices up because she's just trying to –

[00:09:03] Yeah, that's – again, you've jumped ahead there and that's very –

[00:09:06] You're going to get a top class in the Milton Friedman Sears School of Economics at this rate

[00:09:11] because that's what Milton said.

[00:09:12] That if you say there's no – if fundamentally there's only human capital,

[00:09:17] he left out the existence of physical capital,

[00:09:20] then that hairdresser can't go and buy a new pair of scissors because he's only got one pair.

[00:09:25] That's it.

[00:09:26] So if there's – let's talk in terms of increasing the money supply rather than velocity

[00:09:31] because his basic point argument was that the velocity of money is constant.

[00:09:36] And in fact, a major part of Milton Friedman's intellectual career

[00:09:40] was devoted to trying to prove from empirical data that the velocity of money is a constant.

[00:09:45] This is an essential point in monetarism.

[00:09:48] So we can knock that on the head straight away.

[00:09:50] You just need to go and have a look at any database of money velocity,

[00:09:54] which you can see in the FRED database.

[00:09:57] For example, you can see that it's slowed down over the decades.

[00:09:59] It's slowed down over the decades and it's extremely volatile.

[00:10:01] It goes up in booms and down in slumps.

[00:10:04] And actually, this is another very important point

[00:10:06] because two of the most rabidly conservative economists

[00:10:10] that gave us the current state of New York classical economics

[00:10:13] were Finn Kiddlund and Edward Prescott.

[00:10:16] And they both worked at the Minneapolis Central Bank,

[00:10:18] the Federal Reserve Bank.

[00:10:19] And they did...

[00:10:22] It's occasionally that when neoclassical economists

[00:10:24] just sit back and look at the data,

[00:10:27] they actually do good work.

[00:10:29] They're reasonably good statisticians.

[00:10:31] Sometimes they stuff up completely

[00:10:33] or happily volunteer some examples of that.

[00:10:35] But in this particular paper called Business Cycle,

[00:10:38] I think it's called Real Facts and a Monetary Myth.

[00:10:41] And they said that when they looked at the velocity of money,

[00:10:45] it was highly volatile, rose in berms and fell in slumps.

[00:10:48] And that is the opposite conclusion that Milton Friedman reached

[00:10:52] from his monetary history in the United States.

[00:10:55] So the way that Milton...

[00:10:56] But Milton basically cooked the books to find the result he wanted to find

[00:11:00] when better statisticians, less ideological.

[00:11:03] This is crazy.

[00:11:04] If I'm calling Edward Prescott less ideological than somebody else,

[00:11:07] Jesus Christ, is that other person ideological?

[00:11:09] So by doing the straight empirical work,

[00:11:12] they actually contradicted their own theory.

[00:11:14] And they said so in the paper.

[00:11:15] They said, we find these facts interesting

[00:11:17] because they contradict accepted theory,

[00:11:20] including which is their theory.

[00:11:22] So the finding that velocity is volatile

[00:11:25] and rises in berms, falls in slumps,

[00:11:28] and has been trending down over time.

[00:11:30] And of course, it's been trending down

[00:11:31] as private debt's been rising,

[00:11:33] which is left out of their thinking completely.

[00:11:36] Yeah, this is the fallacy.

[00:11:38] The first fallacy is, well, fallacy number one,

[00:11:41] there's no capital, okay?

[00:11:43] So therefore, extra money can't create extra investment

[00:11:47] because what happens in the real world,

[00:11:49] this is, you know, off your little island

[00:11:51] with Nigel Farage as the president

[00:11:54] and Rachel Rees as the...

[00:11:55] That's going to happen in five years' time, you realize.

[00:11:58] Yeah, no.

[00:11:58] Rachel Rees won't be there.

[00:11:59] You're going to have it.

[00:12:01] It's going to be...

[00:12:02] Yeah, this place I'm talking about is Britain, exactly.

[00:12:03] And maybe we will just go back to gold coins, exactly.

[00:12:06] But I'm wondering about...

[00:12:09] So, yes, you're saying that this idea

[00:12:13] that there'll be pressure on the workers to do more,

[00:12:17] but they don't have the resources,

[00:12:18] either the physical resources or they don't have the time,

[00:12:22] they would push their prices up, wouldn't you?

[00:12:25] You would have inflation in that situation.

[00:12:27] And this is exactly what Milton argued,

[00:12:28] and again, what he's done.

[00:12:29] This is something that Schumpeter beautifully described

[00:12:33] as Riccardian advice.

[00:12:34] He said that Riccardo had this tradition

[00:12:38] of setting up a set of initial precepts

[00:12:41] that only had...

[00:12:43] that forced the outcome on the result.

[00:12:46] So you set up a set of assumptions to begin with.

[00:12:49] Therefore, if you accepted those assumptions,

[00:12:53] there's no choice but to reach the conclusion

[00:12:55] that the author wants to reach.

[00:12:57] But the assumptions are wildly unrealistic.

[00:12:59] So in Milton Friedman's key paper,

[00:13:02] the key assumption,

[00:13:04] and I don't think he changed it throughout the paper.

[00:13:06] I haven't read it for some time,

[00:13:07] but I'm pretty certain he's stuck with this assumption.

[00:13:09] There's no capital.

[00:13:10] So if there's no capital,

[00:13:11] extra money can't lead to investment,

[00:13:13] which leads to more capital again,

[00:13:15] and therefore stimulates economic activity.

[00:13:18] Instead, if you have people who can only work,

[00:13:20] you know, the hairdresser's doing an eight-hour day.

[00:13:22] She wants to go and line that lovely beach,

[00:13:24] you know, the beautiful beaches you have in Cointopia.

[00:13:28] I've been to Brighton.

[00:13:31] I'm an Aussie from Bondi Beach.

[00:13:33] No, in my mind,

[00:13:34] in my mind,

[00:13:35] Cointopia is in the middle of the Pacific somewhere.

[00:13:39] Oh, okay.

[00:13:39] Well, I think they've got Sydney beaches with British...

[00:13:41] Sydney beaches and British government.

[00:13:44] That's okay.

[00:13:45] Okay.

[00:13:45] So you're along on a decent beach.

[00:13:47] So if you want to have an eight-hour to lie on the beach,

[00:13:49] they work eight hours a day,

[00:13:50] and then when these extra coins come down,

[00:13:53] everybody's feeling riches,

[00:13:54] or they're going and doing, you know,

[00:13:55] I want a haircut, you know.

[00:13:56] I was going to wait two weeks.

[00:13:57] I want one in one week now.

[00:13:58] So she's working twice as hard,

[00:14:00] twice as many hours.

[00:14:01] This is just not worth it.

[00:14:03] And ultimately,

[00:14:04] with the velocity of money...

[00:14:07] Hang on.

[00:14:08] I'm not sure.

[00:14:08] The velocity of money remains constant.

[00:14:10] But all you do,

[00:14:11] you put up your prices.

[00:14:12] You charge twice as much for the haircut.

[00:14:14] But you don't do that.

[00:14:15] So the only impact...

[00:14:16] I was going to say,

[00:14:17] this would only happen once, though.

[00:14:19] It's not a continual process.

[00:14:23] You're in a roll today.

[00:14:24] I mean, honestly, you really are.

[00:14:26] Because you're anticipating what Milton did.

[00:14:28] So the first stage,

[00:14:29] there's a helicopter that flies over the country.

[00:14:31] He says,

[00:14:32] everybody treats this as a one-off event,

[00:14:34] which will never happen again.

[00:14:35] So what then happens is,

[00:14:37] because there's twice as many coins,

[00:14:39] and only the same amount of labor,

[00:14:40] and you're only in equilibrium,

[00:14:42] you're very happy with the eight hours of the...

[00:14:44] You know,

[00:14:44] eight hours of sleeping,

[00:14:45] eight hours of ear cutting,

[00:14:46] eight hours of lying on Bondi beach.

[00:14:49] That's your preferred lifestyle.

[00:14:51] So when you have twice as many people turning up now

[00:14:55] for haircuts,

[00:14:56] you can't do 16 hours.

[00:14:58] You work for a while,

[00:15:00] because you think,

[00:15:00] oh my God,

[00:15:00] I'm getting more money for the haircuts.

[00:15:03] But the fact is,

[00:15:04] you've got to work longer to do it,

[00:15:06] and this is just not worth it.

[00:15:07] So you start putting your prices up,

[00:15:08] and eventually,

[00:15:09] the prices fall back.

[00:15:10] You used to charge one gold coin for a haircut.

[00:15:12] You now change two gold coins.

[00:15:14] So the price level rises.

[00:15:15] And then it sets in a new equilibrium,

[00:15:18] 2,000 coins,

[00:15:19] exactly the same GDP,

[00:15:22] different monetary GDP,

[00:15:24] but the same real GDP.

[00:15:26] All that's happened is prices have doubled.

[00:15:28] Then,

[00:15:29] ID says we need to play the drum.

[00:15:31] Can you do a decent imitation of

[00:15:33] Ride of the Valkyries?

[00:15:38] We know we're talking.

[00:15:40] For those who don't know it,

[00:15:41] we're talking...

[00:15:43] What's the movie's name?

[00:15:44] Um,

[00:15:45] not Armageddon,

[00:15:46] it was the,

[00:15:47] oh damn,

[00:15:48] the Vietnam War movie.

[00:15:50] I've forgotten.

[00:15:51] Were they flying over a Vietnam village?

[00:15:54] Oh,

[00:15:54] by the way,

[00:15:55] little announcement here,

[00:15:56] which I'm delighted by.

[00:15:57] Just a few minutes before you,

[00:15:59] we started recording this,

[00:16:01] the publisher of the New Economics

[00:16:02] and Manifesto

[00:16:03] told me that they've had an offer

[00:16:04] to have it published in Vietnamese.

[00:16:05] All right,

[00:16:06] excellent.

[00:16:06] So I'm absolutely cock-a-hoomp about that.

[00:16:09] So this is,

[00:16:09] the war movie we're thinking of

[00:16:11] is Apocalypse Now.

[00:16:12] That's it.

[00:16:13] Yeah.

[00:16:13] Apocalypse Now.

[00:16:14] So there's a scene where

[00:16:14] the crazy colonel

[00:16:16] flies in over the,

[00:16:17] over the,

[00:16:18] the water,

[00:16:19] the ocean,

[00:16:20] and comes into a Vietnam village

[00:16:21] and starts strapping

[00:16:22] and shooting everybody.

[00:16:23] So this is,

[00:16:23] you're not dropping bullets,

[00:16:24] you're dropping gold coins.

[00:16:25] You know,

[00:16:26] some cases of concussion,

[00:16:27] not quite as deadly.

[00:16:28] Okay,

[00:16:29] so the coins drop from the sky

[00:16:30] and there's now

[00:16:30] a continuous stream

[00:16:32] of helicopters

[00:16:33] and they're flying over

[00:16:34] and each year

[00:16:35] they drop 10%

[00:16:38] of the current level

[00:16:39] of coins.

[00:16:39] And so year one

[00:16:40] it's 200 coins

[00:16:42] because you've doubled it

[00:16:43] and then you compound

[00:16:44] and compound

[00:16:45] and compound.

[00:16:46] And he said in that world,

[00:16:47] people just get used

[00:16:47] to the helicopters

[00:16:48] flying overhead

[00:16:49] and their reaction is,

[00:16:50] so I'm going to put my prices

[00:16:51] up at the same rate

[00:16:52] of the helicopters

[00:16:53] fly overhead.

[00:16:54] So continuous government

[00:16:55] creation causes

[00:16:56] 10% inflation.

[00:16:57] That's,

[00:16:58] that was the basis,

[00:16:59] this fictional,

[00:16:59] what you've called

[00:17:01] cointopia.

[00:17:02] No real growth.

[00:17:03] And therefore,

[00:17:04] yeah,

[00:17:04] and he then argued,

[00:17:05] this is the thing

[00:17:06] that most people

[00:17:07] don't realize,

[00:17:07] his preferred situation

[00:17:09] was to destroy the coins

[00:17:11] at a rate of 7% per annum

[00:17:13] because he worked out

[00:17:14] what he called

[00:17:14] the marginal,

[00:17:16] loss of marginal utility

[00:17:17] having to carry coins

[00:17:18] in your pocket

[00:17:18] and basically,

[00:17:20] you know,

[00:17:20] basically the less,

[00:17:21] lower the,

[00:17:22] but let's think of the gold coins

[00:17:23] is a great example as well

[00:17:24] because,

[00:17:25] you know,

[00:17:25] you weigh a certain amount

[00:17:26] in your pocket,

[00:17:26] it's uncomfortable,

[00:17:28] you don't get any actual utility

[00:17:29] out of the money.

[00:17:30] So therefore,

[00:17:31] if you destroyed the money

[00:17:32] at a rate of 7% per annum,

[00:17:34] you'd actually get a higher level

[00:17:36] of social utility.

[00:17:37] And he finally compromised

[00:17:38] on a rate of increase,

[00:17:39] I think,

[00:17:39] of about 3% of the money supply

[00:17:42] for various silly,

[00:17:44] really silly reasons

[00:17:46] about utility of carrying coins,

[00:17:48] yada,

[00:17:48] yada,

[00:17:48] yada.

[00:17:49] So rather than actually

[00:17:50] coming down to say

[00:17:51] you should increase

[00:17:52] the level of money supply

[00:17:54] at the rate of growth

[00:17:55] of the economy,

[00:17:56] which is now,

[00:17:57] he's now conceding

[00:17:59] the economy might

[00:17:59] actually be machinery

[00:18:01] in this economy

[00:18:02] and you need more machinery

[00:18:02] to grow.

[00:18:03] But he wanted,

[00:18:04] he said,

[00:18:05] I think a 3% rate

[00:18:07] of money growth,

[00:18:08] something of that nature,

[00:18:08] roughly equal to the rate

[00:18:09] of real growth.

[00:18:10] But this is a crazy,

[00:18:13] crazy vision of the world.

[00:18:14] So let's continue.

[00:18:16] You're next to him.

[00:18:17] Yeah, we will.

[00:18:17] We're going to take a break.

[00:18:19] Look,

[00:18:19] because we're at the situation now

[00:18:21] because Rachel Reeves

[00:18:22] is a little bit concerned

[00:18:23] because she has put a bit

[00:18:24] of extra money

[00:18:25] into the economy

[00:18:26] and she's seen

[00:18:26] that growth happen

[00:18:27] but it's not perpetuated

[00:18:28] because she's not prepared

[00:18:29] to do it every day

[00:18:30] and she's wondering

[00:18:31] whether she should

[00:18:31] pull coins out

[00:18:33] and, you know,

[00:18:34] she's wondering

[00:18:34] how she gets growth

[00:18:35] because she's seeing

[00:18:36] no real growth

[00:18:36] which would be

[00:18:37] the situation,

[00:18:38] wouldn't it?

[00:18:38] She's obviously

[00:18:38] no real growth

[00:18:39] even though she's

[00:18:40] injected cash

[00:18:41] into the economy.

[00:18:42] So she's wondering

[00:18:43] how she can do that

[00:18:44] and she's playing

[00:18:45] with the idea.

[00:18:46] She's going to go

[00:18:47] and see.

[00:18:47] She's gone up

[00:18:48] to the maximum

[00:18:49] security jail

[00:18:50] where Professor Steve Keegan

[00:18:52] is sitting on death row

[00:18:53] for double entry bookkeeping

[00:18:54] and she wants to know

[00:18:58] what to do next.

[00:18:59] So we'll look at that

[00:19:00] after the break

[00:19:01] on the Debunking Economics Podcast.

[00:19:03] You dreamt of

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[00:19:32] capitalanlagerisiko

[00:19:34] marketing information

[00:19:35] In the place

[00:19:38] am Potsdamer Platz

[00:19:39] findest du einfach alles

[00:19:41] von spannender Unterhaltung

[00:19:43] über erstklassige

[00:19:44] Einkaufsmöglichkeiten

[00:19:45] bis hin zu einzigartiger

[00:19:46] Gastronomie

[00:19:47] Komm vorbei

[00:19:47] und genieße besondere Momente

[00:19:49] in the place

[00:19:49] am Potsdamer Platz

[00:19:50] Berlin

[00:19:51] Alles an einem Platz

[00:19:54] This is the Debunking Economics Podcast

[00:19:58] with Steve Keen

[00:19:59] and Phil Dobby

[00:20:00] So Steve,

[00:20:05] another interesting facet

[00:20:06] of the small island

[00:20:08] of Cornucopia

[00:20:09] and you've touched on this

[00:20:10] a few times

[00:20:11] is it's got

[00:20:12] limited resources

[00:20:13] people have been

[00:20:14] burning trees

[00:20:15] to keep warm

[00:20:16] and the supply

[00:20:17] of trees

[00:20:18] is diminishing

[00:20:20] so far

[00:20:21] there's been no

[00:20:22] relationship

[00:20:22] between money

[00:20:23] and resources

[00:20:24] I mean money remains

[00:20:25] but resources

[00:20:25] are depleting

[00:20:26] so the cost

[00:20:27] of a tree

[00:20:28] might go up

[00:20:30] but I mean

[00:20:31] what happens

[00:20:32] to that

[00:20:32] if the cost

[00:20:34] of a tree

[00:20:35] goes up

[00:20:35] that money

[00:20:36] goes to

[00:20:37] whoever owns

[00:20:38] the tree

[00:20:38] and so it keeps

[00:20:40] circulating

[00:20:40] in the economy

[00:20:41] so hence

[00:20:42] the person

[00:20:43] who's got

[00:20:43] all the trees

[00:20:44] keeps saying

[00:20:45] well this is fantastic

[00:20:45] I'll just keep

[00:20:46] on chopping them down

[00:20:47] money keeps moving

[00:20:49] in this world

[00:20:49] irrespective of

[00:20:50] the natural world

[00:20:51] that's a bit

[00:20:52] of a problem

[00:20:52] isn't it?

[00:20:53] This is

[00:20:54] an important issue

[00:20:56] the link between

[00:20:56] money

[00:20:57] the money economy

[00:20:58] and the real economy

[00:20:59] and what I find

[00:21:01] crazy

[00:21:02] when I see

[00:21:02] that Austrian

[00:21:03] economist in particular

[00:21:04] or people who've been

[00:21:05] infected by Austrian

[00:21:06] economics

[00:21:07] commenting on Twitter

[00:21:08] about inflation

[00:21:09] they're basically

[00:21:10] any increase

[00:21:11] in money

[00:21:12] causes inflation

[00:21:13] now an increase

[00:21:14] in money

[00:21:14] causes inflation

[00:21:15] if no productive

[00:21:16] resources

[00:21:17] are harnessed

[00:21:18] or created

[00:21:18] by that extra money

[00:21:20] creation

[00:21:20] and that's bollocks

[00:21:21] this is the reason

[00:21:22] they can think this

[00:21:23] they don't realise

[00:21:24] they've got the Milton

[00:21:25] disease in their brains

[00:21:26] and they're effectively

[00:21:27] presuming

[00:21:28] that there's no

[00:21:29] capacity

[00:21:30] for the extra money

[00:21:31] to motivate

[00:21:32] the formation

[00:21:33] of extra resources

[00:21:33] and in fact

[00:21:36] we're going back

[00:21:37] from leaving

[00:21:38] Cointopia

[00:21:39] and going back

[00:21:39] to some other

[00:21:41] part of the planet

[00:21:42] in the real world

[00:21:43] when extra money

[00:21:43] turns up

[00:21:44] that is often a mean

[00:21:45] and again

[00:21:46] Schumpeter was probably

[00:21:47] the best on this

[00:21:48] argument

[00:21:48] the extra money

[00:21:49] enables people

[00:21:50] who've got great

[00:21:51] ideas but no money

[00:21:52] to put those

[00:21:53] operations into effect

[00:21:54] so Schumpeter

[00:21:55] and this is

[00:21:56] a bit of a fallacy

[00:21:57] in terms of how

[00:21:57] banks actually operate

[00:21:58] but Schumpeter's

[00:22:00] vision was that

[00:22:01] banks

[00:22:01] by creating money

[00:22:02] and this is the

[00:22:03] banks of the private

[00:22:03] sector now doing it

[00:22:04] rather than the

[00:22:05] government

[00:22:06] money was lent

[00:22:08] to entrepreneurs

[00:22:09] who had good ideas

[00:22:10] but no money

[00:22:11] with that money

[00:22:12] they could then

[00:22:13] buy some of the

[00:22:13] existing capital goods

[00:22:14] because in the real world

[00:22:16] there's more than just

[00:22:17] labor

[00:22:17] capital is not just

[00:22:19] human capital

[00:22:19] which was Milton Friedman's

[00:22:21] crazy abstraction

[00:22:22] there's physical stuff

[00:22:24] which you have to make

[00:22:25] but to say

[00:22:25] to make new machinery

[00:22:27] rather than scissors

[00:22:28] you make electric

[00:22:30] razors

[00:22:31] you know

[00:22:31] that's your

[00:22:32] technological idea

[00:22:33] so you're going to go

[00:22:34] from using scissors

[00:22:35] to make a haircut

[00:22:36] which takes forever

[00:22:37] to you know

[00:22:38] you run the razor

[00:22:39] over the head

[00:22:39] and the person's

[00:22:40] cutting in 30 seconds

[00:22:41] so you can do five times

[00:22:42] as many customers

[00:22:44] the person with that

[00:22:45] got that great idea

[00:22:46] has to hire

[00:22:47] the people who made

[00:22:48] the scissors

[00:22:48] because the scissors

[00:22:49] are capital equipment

[00:22:50] as well

[00:22:51] and then teach them

[00:22:52] how to you know

[00:22:53] forge steel

[00:22:54] and wrap wire

[00:22:55] around cables

[00:22:56] to make electric motors

[00:22:58] and then you've got to

[00:22:59] you know

[00:22:59] get that stream

[00:23:00] up on the mountainside

[00:23:01] and put a wheel

[00:23:02] inside there

[00:23:03] and the wheel turns

[00:23:03] and you've got to

[00:23:04] electric power

[00:23:05] and run the cables down

[00:23:07] all this is extremely expensive

[00:23:08] you have the great idea

[00:23:09] of doing it

[00:23:10] but you've got no money

[00:23:10] we go to the bank

[00:23:11] and you say

[00:23:12] look if I do this

[00:23:13] I can sell

[00:23:14] electric razors

[00:23:15] rather than scissors

[00:23:17] and you're going to

[00:23:17] farm more productive

[00:23:18] hairdressers

[00:23:19] and the economy will grow

[00:23:22] as a result of this

[00:23:22] but I haven't got any money

[00:23:23] and the bank says

[00:23:24] oh here's some money

[00:23:25] we're going to give you

[00:23:26] a promissory note

[00:23:27] which people will now

[00:23:28] accept in this island

[00:23:29] but also you owe us debt

[00:23:30] and now that is seeing

[00:23:32] the creation of private debt

[00:23:35] in this case

[00:23:36] and for Kwanzaa

[00:23:37] to enable growth

[00:23:39] yeah

[00:23:40] right

[00:23:40] but we haven't got there yet

[00:23:41] oh sorry

[00:23:42] I jumped ahead

[00:23:43] okay yeah

[00:23:43] but no that's right

[00:23:44] we're taking this step by step

[00:23:45] so we do have the issue though

[00:23:47] that we've got

[00:23:48] only so many trees

[00:23:49] on this island

[00:23:50] and they keep on getting burnt down

[00:23:51] to keep people warm

[00:23:54] actually

[00:23:54] this is a desert island

[00:23:56] so it's like Australia

[00:23:57] there's no waterfalls

[00:23:58] you've got to burn the trees

[00:23:59] to heat the furnaces

[00:24:00] to make the steel

[00:24:01] okay

[00:24:01] yeah

[00:24:03] or just burn them

[00:24:04] to keep warming

[00:24:05] your house at night

[00:24:05] because it gets cold

[00:24:06] in winter

[00:24:08] this is not the Australia

[00:24:09] I remembered

[00:24:10] no it's not

[00:24:11] no it's

[00:24:12] you know

[00:24:12] night time can get cold

[00:24:13] you know

[00:24:14] in this island

[00:24:14] but anyway

[00:24:15] money

[00:24:15] you're burning wood

[00:24:16] for something

[00:24:17] or you're making furniture

[00:24:18] out of it

[00:24:18] or whatever

[00:24:19] the fact is

[00:24:20] that is a resource

[00:24:21] that is getting depleted

[00:24:22] it's getting depleted

[00:24:24] with no impact

[00:24:25] and take your point

[00:24:26] that hopefully

[00:24:27] someone will come along

[00:24:27] and say

[00:24:28] well I've got a good idea

[00:24:29] rather than using wood

[00:24:30] we can do something else

[00:24:33] you know

[00:24:33] here's an alternative

[00:24:34] with what we've got available

[00:24:35] on this island

[00:24:36] here's a great idea

[00:24:37] about how we can make use

[00:24:38] of what we have

[00:24:40] and you know

[00:24:41] you need money to do that

[00:24:42] but until you get to that point

[00:24:44] I mean

[00:24:44] the money is changing hands

[00:24:46] resources are being depleted

[00:24:47] there isn't really

[00:24:48] a great relationship

[00:24:49] between the two

[00:24:50] is there

[00:24:50] no

[00:24:51] well in fact

[00:24:51] if you're talking about

[00:24:52] in a broader society

[00:24:54] isn't that a problem

[00:24:55] that we

[00:24:55] you know

[00:24:55] part of the problem we face

[00:24:57] that the broader capitalist system

[00:25:00] can carry on working

[00:25:01] irrespective

[00:25:02] of how much

[00:25:03] it's chewing up resources

[00:25:04] I mean

[00:25:05] it's just

[00:25:05] this is a very simple example

[00:25:06] of it

[00:25:07] well you've

[00:25:07] actually

[00:25:07] we've now jumped

[00:25:08] from Australia

[00:25:09] to Easter Island

[00:25:10] okay

[00:25:12] and that's

[00:25:13] you know

[00:25:13] you deplete the resources

[00:25:15] and suddenly they're gone

[00:25:16] and therefore

[00:25:16] the lifestyle you had

[00:25:17] beforehand

[00:25:18] is no longer feasible

[00:25:19] and like you know

[00:25:20] this is a jump in topic

[00:25:22] we've gone a fair distance

[00:25:23] from the initial

[00:25:26] you know

[00:25:27] coin type

[00:25:27] or abstraction

[00:25:28] but yeah

[00:25:29] economic activity

[00:25:31] values

[00:25:33] what you sell

[00:25:34] rather than

[00:25:35] what you deplete

[00:25:36] and that is

[00:25:37] the fact that we have

[00:25:38] a monetary system

[00:25:39] which only

[00:25:40] rewards

[00:25:43] economic activity

[00:25:44] and that economic activity

[00:25:45] necessarily uses resources

[00:25:47] and therefore

[00:25:47] can pretend

[00:25:48] unless you

[00:25:49] can renew those resources

[00:25:50] depletes the resources

[00:25:52] then you're on the road

[00:25:53] to ruin

[00:25:54] yeah

[00:25:54] and so they're on that road

[00:25:55] and so that might be why

[00:25:57] they need to

[00:25:58] invest

[00:25:59] to try and find new ways

[00:26:00] of getting their economy moving

[00:26:01] but let's just look at the value

[00:26:03] of the coins as well

[00:26:04] before we start allowing

[00:26:05] borrowing from banks

[00:26:06] which Rachel Reeves

[00:26:07] is coming around to

[00:26:07] very slowly

[00:26:09] so the value of the coins

[00:26:10] is based on

[00:26:12] gold

[00:26:15] but I mean

[00:26:16] it's meaningless

[00:26:17] on this island

[00:26:17] because

[00:26:18] all they know is

[00:26:19] this is a coin

[00:26:21] and as I said

[00:26:22] nobody trusts each other

[00:26:23] but then they get aware

[00:26:25] somebody

[00:26:26] they become aware

[00:26:28] of

[00:26:28] someone sees a

[00:26:29] copy of a

[00:26:31] newspaper

[00:26:31] sort of like

[00:26:32] lands on the coastline

[00:26:34] and it's got gold prices

[00:26:36] in it

[00:26:36] and they suddenly realise

[00:26:38] that

[00:26:38] you know

[00:26:39] the value of their coins

[00:26:40] if you added them all up

[00:26:41] and melted them down

[00:26:43] would be a lot less

[00:26:45] than they'd get

[00:26:46] for the gold value

[00:26:47] you know

[00:26:48] on the international

[00:26:50] gold exchange

[00:26:52] so

[00:26:52] all of a sudden

[00:26:54] their perception

[00:26:54] of how much

[00:26:55] their gold coins

[00:26:57] is worth

[00:26:58] is reduced somewhat

[00:26:59] isn't it

[00:27:00] so what happens

[00:27:01] to the economy then

[00:27:02] oh

[00:27:02] okay

[00:27:03] well

[00:27:04] in that case

[00:27:05] they'd like to

[00:27:06] try to build ships

[00:27:07] to take the coins

[00:27:08] offshore

[00:27:09] and sell them

[00:27:09] on the market

[00:27:11] you'd need

[00:27:12] but they're worth less

[00:27:13] they're actually worth less

[00:27:14] so they wouldn't do that

[00:27:16] they'd be a mutiny

[00:27:18] I suspect

[00:27:18] because they'd be going

[00:27:19] well hang on a second

[00:27:19] our coins aren't worth

[00:27:20] as much as we thought

[00:27:21] they were

[00:27:22] therefore we want

[00:27:23] I think this is actually

[00:27:25] getting away from the

[00:27:26] original idea

[00:27:27] but I want to make

[00:27:28] a little comment here

[00:27:30] because you mentioned

[00:27:31] I'm trying to relate

[00:27:32] the value of it

[00:27:32] you know

[00:27:33] actually what is the

[00:27:33] value of the coin

[00:27:34] is what I'm

[00:27:35] well this

[00:27:35] the value of a coin

[00:27:37] is a promise

[00:27:38] and this is an

[00:27:39] important point

[00:27:39] this is why I'm jailed

[00:27:40] for double entry

[00:27:41] bookkeeping on this island

[00:27:42] because most people

[00:27:43] think the gold

[00:27:44] the actual

[00:27:45] the value of the gold

[00:27:46] backs the

[00:27:47] backs the coin

[00:27:49] so they effectively

[00:27:51] think the asset

[00:27:51] is the gold

[00:27:52] okay

[00:27:53] and therefore

[00:27:54] the idea that you can

[00:27:55] have a lending

[00:27:57] of this stuff

[00:27:58] so you have an asset

[00:27:59] and a liability

[00:27:59] which is the promise

[00:28:01] somebody has made

[00:28:02] to repay coins

[00:28:04] they've borrowed

[00:28:04] that is seen

[00:28:06] as violating

[00:28:07] the concept

[00:28:07] that money

[00:28:08] must be backed

[00:28:09] by gold

[00:28:09] now I had this

[00:28:10] particular

[00:28:11] I've forgotten

[00:28:11] which some jerk

[00:28:12] on Twitter

[00:28:12] attacking me

[00:28:14] by saying

[00:28:15] really

[00:28:15] vicious

[00:28:16] quite vicious

[00:28:17] stuff

[00:28:17] it's unusual

[00:28:18] for Twitter

[00:28:18] I know

[00:28:19] but anyway

[00:28:19] attacking me

[00:28:21] for saying

[00:28:21] what's coming

[00:28:21] at that place

[00:28:22] saying

[00:28:23] he said

[00:28:23] what's the asset

[00:28:24] what's the liability

[00:28:25] and his basic

[00:28:26] attitude was

[00:28:26] that the asset

[00:28:27] had to be

[00:28:28] backed by gold

[00:28:29] so he wanted

[00:28:30] triple entry

[00:28:31] bookkeeping

[00:28:31] the gold

[00:28:32] itself

[00:28:33] the promise

[00:28:34] itself

[00:28:34] wasn't enough

[00:28:34] it had to be

[00:28:35] backed by a

[00:28:36] physical entity

[00:28:36] which was the

[00:28:37] resource of gold

[00:28:38] and that was

[00:28:39] and this is

[00:28:40] the nonsense

[00:28:42] that so many

[00:28:42] people get

[00:28:43] caught up in

[00:28:44] that they

[00:28:44] believe that

[00:28:45] money must be

[00:28:46] backed by a

[00:28:47] physical resource

[00:28:48] the old gold

[00:28:49] standard

[00:28:49] and therefore

[00:28:51] when I said

[00:28:51] the asset

[00:28:52] is the loan

[00:28:53] for the bank

[00:28:55] and the liability

[00:28:57] is the deposit

[00:28:57] and that balances it

[00:28:59] he was absolutely

[00:29:00] outraged at me

[00:29:01] and I was a criminal

[00:29:02] and blah blah blah

[00:29:03] I finally realised

[00:29:05] what the hell

[00:29:05] is this jerk

[00:29:06] going on about

[00:29:07] and what he really

[00:29:08] was doing

[00:29:08] was when you

[00:29:09] say that money

[00:29:10] must be backed

[00:29:10] by a physical

[00:29:12] thing like gold

[00:29:13] you cannot

[00:29:14] accept

[00:29:15] that assets

[00:29:16] and liabilities

[00:29:17] those two entries

[00:29:19] explain the whole

[00:29:20] system

[00:29:20] he thought

[00:29:22] there had to be

[00:29:23] as well as

[00:29:24] so you couldn't

[00:29:25] say that a loan

[00:29:25] by the bank

[00:29:26] was an asset

[00:29:27] of the bank

[00:29:27] and the deposit

[00:29:28] was liability

[00:29:28] and it's all over

[00:29:30] you had to explain

[00:29:31] why the money

[00:29:31] had value

[00:29:31] in the first place

[00:29:32] and it had to have

[00:29:33] value because

[00:29:33] it was brought

[00:29:34] back by gold

[00:29:35] and because I

[00:29:35] wasn't saying

[00:29:36] that I was a

[00:29:36] cretin

[00:29:37] and a criminal

[00:29:37] yada yada yada

[00:29:38] so this is

[00:29:40] tying up

[00:29:41] not realising

[00:29:42] that in a sense

[00:29:44] you think

[00:29:45] the asset

[00:29:46] is the value

[00:29:46] of the gold

[00:29:47] the asset

[00:29:48] is somebody else

[00:29:48] will accept it

[00:29:49] in full payment

[00:29:50] for a commercial

[00:29:50] transaction

[00:29:51] so even a gold

[00:29:53] coin

[00:29:53] is a promise

[00:29:54] okay

[00:29:55] if you exchange

[00:29:56] it

[00:29:56] you accept

[00:29:58] this

[00:29:58] in complete

[00:29:59] closure

[00:30:00] of any

[00:30:00] commercial deal

[00:30:01] like you know

[00:30:01] you buy

[00:30:02] your scissors

[00:30:03] off the manufacturer's

[00:30:04] scissors

[00:30:04] or you buy

[00:30:04] the razor

[00:30:06] off the person

[00:30:07] now making

[00:30:07] raises

[00:30:08] but it's the

[00:30:09] it is still

[00:30:10] effectively a promise

[00:30:11] and the fact

[00:30:12] that the gold coins

[00:30:12] are accepted

[00:30:13] is why you have

[00:30:14] commerce in gold coins

[00:30:16] equally in the real world

[00:30:18] the reason you have

[00:30:19] commerce with bank

[00:30:20] deposits

[00:30:20] if everybody accepts

[00:30:21] the promise to pay

[00:30:22] that bank liability

[00:30:24] represents

[00:30:25] when you

[00:30:26] when you transfer

[00:30:27] money from your

[00:30:28] account to my account

[00:30:29] that is a transfer

[00:30:31] of the promise

[00:30:31] to the bank

[00:30:31] to pay you

[00:30:32] to the promise

[00:30:33] to the bank

[00:30:33] to pay me

[00:30:34] and I accept

[00:30:34] that in full

[00:30:35] payment of whatever

[00:30:36] I've sold

[00:30:36] to you

[00:30:37] so fundamentally

[00:30:38] even a coin

[00:30:40] based system

[00:30:40] is a system

[00:30:41] based on promises

[00:30:42] I'm wondering

[00:30:43] because we've still

[00:30:44] got a bit to cover

[00:30:45] whether we should

[00:30:46] return to

[00:30:47] cornucopia

[00:30:48] I think we should

[00:30:49] yeah

[00:30:49] this has been

[00:30:50] spent half an hour

[00:30:51] yeah

[00:30:52] and next time

[00:30:54] because Rachel

[00:30:55] Reeves

[00:30:55] has spent a bit

[00:30:56] of time with you

[00:30:57] now and she's

[00:30:57] thinking about

[00:30:58] the high security

[00:30:59] jail

[00:30:59] how did I cope

[00:31:00] you fell asleep

[00:31:01] in the middle

[00:31:02] she just put it

[00:31:04] down to the fact

[00:31:05] you're getting old

[00:31:05] but obviously

[00:31:06] it's not

[00:31:06] yeah that's true

[00:31:07] I snore a lot

[00:31:08] yeah yeah

[00:31:10] but she is

[00:31:11] thinking well

[00:31:12] maybe we ought

[00:31:12] to allow loans

[00:31:13] and bank loans

[00:31:16] are going to

[00:31:16] happen

[00:31:16] this is the next

[00:31:17] installment

[00:31:18] on the

[00:31:19] island of

[00:31:19] cornucopia

[00:31:20] I think you have

[00:31:21] a book here mate

[00:31:22] I really do

[00:31:23] I think you should

[00:31:24] work on this one

[00:31:25] okay

[00:31:26] get your humour

[00:31:27] and economic logic

[00:31:28] rolling together

[00:31:29] that's next week

[00:31:30] on the

[00:31:30] debunking

[00:31:31] economics podcast

[00:31:32] good to talk to you

[00:31:32] sounds like fun

[00:31:33] good

[00:31:34] the debunking

[00:31:35] economics podcast

[00:31:43] you dreamt

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[00:31:52] your future

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[00:31:58] and this

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[00:32:00] so you can

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[00:32:13] if you've

[00:32:16] enjoyed

[00:32:17] listening to

[00:32:18] debunking

[00:32:18] economics

[00:32:19] even if you

[00:32:19] haven't

[00:32:20] you might

[00:32:20] also enjoy

[00:32:21] the Y

[00:32:22] curve

[00:32:22] each week

[00:32:23] Roger

[00:32:23] hearing

[00:32:24] and i

[00:32:24] talk to

[00:32:25] a guest

[00:32:25] about a

[00:32:25] topic

[00:32:26] that is

[00:32:26] very much

[00:32:27] in the

[00:32:27] news

[00:32:27] that

[00:32:27] week

[00:32:28] it's

[00:32:28] lively

[00:32:28] it's

[00:32:29] fun

[00:32:29] it's

[00:32:29] informative

[00:32:30] what more

[00:32:30] could you

[00:32:31] want

[00:32:31] so search

[00:32:32] the Y

[00:32:32] curve

[00:32:33] in your

[00:32:33] favourite

[00:32:34] podcast

[00:32:34] app

[00:32:35] or go

[00:32:36] to

[00:32:36] ycurve

[00:32:36] dot com

[00:32:37] to listen