What is Modern Money?

The term ‘modern’ in Modern Monetary Theory (MMT) has a double meaning. On one level, ‘modern money’ is a literary reference to Keynes’ A Treatise on Money in which he suggests that the money of modern states has been chartal for at least four thousand years (see, for example, this paper by Randall Wray). On another level, the ‘modern’ in Modern Monetary Theory can be used to denote the period since the breakdown of Bretton Woods in 1971 (see, for instance, this post by Bill Mitchell that distinguishes the gold standard and Bretton Woods eras with the modern era of fiat currencies). It is this second sense of the term ‘modern’ that is relevant in the present context.

A post-1971 “modern monetary system” typically has three key features. Two of these features are always present. The third is optional but normally should be in place for the full benefits of modern money to be enjoyed:

1. The currency is a public monopoly. Government issues the currency and is the only entity allowed to do so.

2. The currency is not convertible into a commodity at a fixed rate. It is a fiat currency. The government does not promise to convert its currency into a precious metal or some other commodity at a set price.

3. The exchange rate is allowed to float. The government does not promise to maintain a fixed exchange rate with any foreign currency. Instead, the exchange rate is ‘flexible’ or ‘floating’. As already mentioned, this feature is usually operative, but not always.

Taking these three features together, we can say that modern money normally involves a ‘flexible-exchange-rate nonconvertible currency’, or ‘flex-rate currency’ for short.

Modern Money is a Public Monopoly

In saying that government is the sole issuer of its money, both “government” and “money” are being referred to in specific ways.

Government, in the present context, refers to the ‘consolidated government sector’, which includes the fiscal and monetary authorities. In the US, for instance, the federal government includes the President and Congress at the top of the hierarchy. Congress authorizes taxing and spending measures. Below this level are the Treasury and Federal Reserve (central banking system). These serve, respectively, as the fiscal and monetary agents of Congress.

When the government spends or lends, the monetary authority issues new money. The money issued is of two particular kinds, referred to as ‘currency’ and ‘reserves’.

Currency includes notes and coins. It is the physical money we carry around with us and sometimes use for making purchases. (The term currency is also used to refer more broadly to a particular unit of account, such as the dollar, the yen, the pound and so on. The intended usage is normally made clear by the context.) If the government sends somebody a check, the recipient might take the check to a bank to cash it in. The bank will need currency on hand — notes and coins — to satisfy the customer. Since the only legitimate issuer of currency is the government, the banking system ultimately must obtain it from that source.

These days, of course, the government will typically make an electronic transfer rather than send out a check. The government (specifically, the monetary authority) does this on a computer screen by crediting the ‘reserve account’ of the recipient’s bank and instructing the bank to credit the recipient’s account. Just as we have personal bank accounts, banks have reserve accounts at the central bank. As with currency, the sole source of new reserves is the consolidated government sector.

Currency and reserves, taken together, are often referred to as high-powered money, outside money or ‘government money’. The purpose of these terms is to distinguish currency and reserves from other monies. A particularly important distinction is drawn between government money and ‘private bank money’.

Broader definitions of money include private bank deposits as part of the “money supply”, and still broader definitions include deposits held at non-bank financial institutions. Private banks create deposits whenever they extend loans. This means that they are very much involved in money creation, in this broader sense. In fact, the vast majority of broad money creation (upwards of 95 percent) takes the form of private bank money.

In extending loans, banks are not constrained by the balances in their reserve accounts. They can always obtain reserves if and when needed from other banks or from the central bank.

Even so, banks do ultimately rely on government to issue currency and reserves because, as currency monopolist, government is the only source of these funds. Banks need access to currency and reserves because private bank deposits are banks’ promises to provide currency (either immediately or at some future date) to account holders as well as to have reserves sufficient to facilitate final settlement of transactions conducted from these accounts.

When a private bank requires more currency, the central bank debits its reserve account and delivers the currency. In such a situation, the bank might find itself short of reserves. If so, it will frequently be able to borrow them from another bank. But when the banking system as a whole is short of reserves, some banks will have to obtain additional reserves from the central bank, by borrowing from it at interest, usually executed automatically as an overdraft on the bank’s reserve account. Or, if these banks have previously purchased government securities, they can sell some of them back to the central bank in exchange for reserves.

In this way, the central bank always stands ready to supply reserves to the banking system, but at a price and on terms (including acceptable collateral) of the central bank’s choosing.

With the above in mind, it is clear that only the government is in a position to guarantee the viability of the banking system as a whole. Private banks can become insolvent, just as private businesses and households can suffer bankruptcy. A currency-issuing government, in contrast, can never run out of money. The only constraints on its capacity to issue its own money are those it places on itself. And since it is the government, it can always alter these self-imposed rules if necessary to safeguard the monetary system or conduct appropriate monetary and fiscal policy. (Of course, just because a government can issue more money does not mean that it necessarily should. For a consideration of appropriate currency issuance informed by the availability of willing workers and real resources, see here and here.)

Modern Money is Not Convertible Into a Commodity at a Fixed Rate

The reason a currency-issuing government faces no financial constraint, only resource and political constraints, is that it makes no promise to convert its currency into anything other than the currency itself. For example, an American who visits the Federal Reserve and hands over 20 US dollars will not get an amount of gold or foreign currency in exchange, but simply 20 US dollars.

It is possible, of course, to buy 20 dollars worth of gold, or 20 dollars worth of Japanese yen, but the amount of gold or yen received in exchange for the 20 dollars will fluctuate with conditions of production and market prices.

Since the government faces no revenue constraint in its own currency, it rarely makes sense for it to borrow in a foreign currency. Doing so would require it to obtain the foreign currency to service its debt, causing exposure to exchange-rate risk. If the foreign currency happened to appreciate relative to the domestic currency, the government could find it necessary to raise interest rates or impose austerity to prevent unfavorable exchange-rate movements. The government’s policy space would be reduced.

There is little reason to get into such difficulties. The government can always buy whatever is for sale in its own currency. The only legitimate justification for borrowing foreign currency would be if certain essential items were not for sale in the government’s currency nor obtainable in any other way. This is not an issue for governments of wealthy nations. Even in low-income countries, governments should be extremely reticent to borrow foreign currency. It would be better, where possible, to negotiate trade in real terms (an amount of real resource X for an amount of real resource Y). To the extent low-income countries do resort to borrowing in foreign currencies, it is often due to bullying by the World Bank and International Monetary Fund. Such pressure is exerted to benefit international creditors at the expense of domestic populations.

The Exchange Rate Regime

Most modern governments allow exchange rates to float. This gives the most policy space. There is then much less need to accumulate or maintain foreign exchange reserves simply to protect or manage the value of the exchange rate. In contrast, running a fixed exchange rate, or deciding to ‘peg’ a currency’s value to movements in another currency, potentially limits policy options because of the need to accumulate or maintain reserves in the other currency. Basically, within a modern money system, there is a continuum in which a flexible exchange rate gives maximal policy space and a fixed rate minimizes policy space. The option to peg lies somewhere in between.

Fixed or pegged exchange rates are most problematic for nations running trade deficits, and the majority of nations do run trade deficits. By importing more than they export, these nations experience a depletion of foreign exchange reserves, because foreign currency is needed to pay for the imports. With a flex rate, this might cause a depreciation in the domestic currency but leave fiscal and monetary policy largely unconstrained. In contrast, with a fixed or pegged rate, the monetary authority might find it necessary to raise interest rates in an effort to attract foreign currency into the country. Such an interest-rate policy might clash with domestic policy needs. Similarly, the fiscal authorities might find it necessary to cut spending or increase taxes in an effort to slow economic activity and curb import spending. Unfortunately, another effect of such a policy is to reduce domestic demand, production and employment.

Although it is clearly better for governments of trade-deficit economies to opt for a flex-rate regime, the risks of a fixed or pegged exchange rate should not be overstated. It is always possible for the government to alter its target exchange rate if desired. Although this may be frowned upon, or incite political opposition, the decision by a currency issuer to fix or peg is always a self-imposed constraint and, as such, can be overturned at a later date. For this reason, currency-issuing governments who fix or peg do not relinquish their monetary sovereignty, unlike the European governments who have agreed to adopt the euro. This is why currency-issuing governments operating under a fixed or pegged rate can still be counted among the issuers of modern money.

In practice, it is the governments of trade-surplus countries that are most likely to fix or peg exchange rates. These countries are accumulating foreign exchange reserves, which makes the choice largely unproblematic.


27 thoughts on “What is Modern Money?

  1. ” … because foreign currency is needed to pay for the imports”.

    Just a basic question Peter: do fixed or floating xrate Nations ever purchase imports by paying for them in their domestic currency – acceptable to the export Nation?

  2. I don’t agree that “In extending loans, however, banks are ultimately reliant on the government to issue currency and reserves.”

    Banking in its current form started with those goldsmiths lending out paper receipts for non-existent gold. I.e. gold was the monetary base as distinct from the central bank supplied fiat base that we now have. Thus I suggest commercial banks can set up money issuing and lending system even if government and central bank play no part in that.

    In fact I’d go further and argue that once a banking system is up and running, the monetary base can be disposed of. As to how commercial banks would settle up with each other, that’s easy: they could settle up using property, shares or any other asset.

  3. Pete

    Excellent overview.

    “Even in low-income countries, governments should be extremely reticent to borrow foreign currency. It would be better, where possible, to negotiate trade in real terms (an amount of real resource X for an amount of real resource Y)”

    I totally agree that it would be much better from a macro perspective. Unfortunately, this kind of swap, it seems to me (and I think to jrbarch), is rather unusual for private sector deals.

    Incidentally, when countries contract debts in foreign currency, they become vulnerable to changes in monetary policy of the lending nations, as it happened to Latin America during the 1980s, with Volcker’s interest rates increases.

  4. jrbarch: The following is my (limited) understanding. Anyone more knowledgeable on FX matters should feel free to step in and correct or elaborate.

    Take the fixed-rate case first. The bottom line here is that somebody is going to have to be willing to accept the importing nation’s currency at the fixed rate of exchange for the trade to go ahead. Typically the exporter will need to pay workers in its local currency and suppliers in local currency or, if some inputs are imported, possibly some other currency. Even if the exporter accepts the importing nation’s currency, it will typically need to convert much of what it receives into its local currency. If there look to be insufficient takers in the market at the fixed exchange rate, the central bank of the importing nation (which is intent on maintaining the exchange rate) needs to step in and purchase its currency, paying for it with foreign currency out of its reserves. Over time, an ongoing trade deficit will deplete the foreign exchange reserves of the central bank that is attempting to maintain the fixed rate.

    In the flex-rate case, rather than the central bank attempting to maintain the exchange rate at a certain level, it can allow the currency to depreciate if this happens to be the effect of an ongoing trade deficit. A trade deficit will not necessarily cause currency depreciation. It will depend on the willingness of foreigners to save in the importing nation’s currency. If a country has a stable, high-employment, strong-growth economy with a diverse pattern of production (making it fairly resilient in the face of various shocks), its currency may well be seen as a desirable saving vehicle.

    As I understand it, the potential issue for a low-income country, even with a flex rate, is that a difficulty can arise if the need for essential imported items exceeds what can be obtained with foreign exchange earned through exports. Foreigners may not be interested in saving in the low-income nation’s currency. If so, the potential trade won’t go ahead, which, if the items are essential, will be problematic unless a workaround can be found.

  5. Magpie: This last aspect — the possibility of a workaround — leads in to your observation about private-sector trade not often being conducted in real terms. It may be that the government will need to take the initiative in such situations. If a low-income nation is unable to access essential items and in a given instance it is not in the interests of the private sector to orchestrate a trade in real terms, it would be up to the government to attempt such an arrangement. Of course, there are other options, such as imposing import restrictions on luxury items.

  6. Ralph: The statement in the post that banks ultimately rely on the central bank for reserves (settlement purposes) is made in the context of explaining the meaning of “modern money” as the term is employed in Modern Monetary Theory. Among other features, “modern money” is conceived as a public monopoly. I’m not questioning that under a different monetary system, settlement could be handled in a different way. Note, though, that for private banks to play the role you suggest, they ultimately would rely on the state to enforce whatever obligations private banks happened to impose on their customers.

  7. Thanks Peter! It’s fascinating how relations between what NeilW. calls ‘currency areas’ fluctuate; and prices seem to be as predictable as a change in the wind. And yet the driver behind all of that is human beings (and the physicality of the skin of the earth). Desire is a river, meant to flow …..!

    Russia & Europe, China & Asia, the US and the West – seem to be the three turbines that harness its power! The currency areas little substations? I wish there were more swapping going on Magpie – little kids call it sharing!

  8. “1. The currency is a public monopoly. Government issues the currency and is the only entity allowed to do so.”

    I think #1 needs some rethinking or removing. If that statement is true, it’s just by identity, because you’re defining currency as the government’s IOUs. Well everyone has a monopoly on issuing their own IOUs.

    And everyone can create their own money, simply by issuing bearer IOUs/credit. Chartered banks and other financial institutions are built on this concept, as you point out in the explanation. Their promise to convert their own liabilities into government IOUs at par is not an economic necessity, but rather a legal/regulatory necessity (for chartered banks to keep their charter) and a pragmatic choice to increase the likelihood that people will value their IOUs.

    What #1’s explanation boils down to more generally is that anyone who issues non-convertible IOUs can never run out of their own IOUs. But that’s the case for anyone who wants to write down any number on some paper and offer it as valuable.

  9. The state’s currency is both a monopoly and public — a public monopoly. Your IOU or mine (or a bank’s) are monopolies but not public ones. We can’t compel a demand for our IOUs. The state can do so by imposing and enforcing taxes and other obligations on the non-government. Tax payments are only settled with reserves (government money) and reserves are only issued by government. Payments required by the courts in resolution of private disputes are specified in the state’s currency and require reserves (government money) for final settlement.

  10. “Your IOU or mine (or a bank’s) are monopolies but not public ones.”

    Right but again, this is just an identity based on the definition of ‘public’. Everyone has a monopoly on issuing their own IOUs, and government monopolies can be synonymously called ‘public’ monopolies.

    Definitely I think the main usefulness of your #1 aspect of Modern Money is about how the thing in which everyone must pay taxes is only issued by the government. You mentioned in the explanation that #1 depended on a very specific definition of “money”/”currency”, but you didn’t mention this ‘tax-acceptable’ point which is the real crux.

    There isn’t a public monopoly on creating money. There is a public monopoly on creating government money / currency, but this is trivially true. There is a public monopoly on creating the only thing that is acceptable as tax payment, and this is the concept you’re looking for in #1 I think.

  11. I agree that the government’s prerogative to tax and specify what those taxes must be settled in is the fundamental driver of demand for a state money. I’ve discussed that point in numerous posts in the past, the most elementary perhaps being this one:

    Why Do We Accept Fiat Currency?

    But I’m not sure that that is what distinguishes money in a nonconvertible currency system from money under alternative state money systems. While the “taxes drive money” argument seems applicable to convertible and nonconvertible currencies alike (maybe in varying degrees), the public monopoly aspect does not apply in all cases. Under a pure gold standard, for instance, private gold producers participated in the mining for gold and could have the gold minted into coins.

  12. The requirement that obligations to be state be paid in currency that is only issued by the government is sufficient (but not necessary) to “drive” state money by creating a continuous demand for it owing to the need to obtain it to avoid the legal consequences of failure to meet such obligations that government imposes.

    But this doesn’t explain why people choose to use the unit of account that the state imposes for transactions with it in dealing with other transactions. There are several reasons.

    The first and probably most significant is that other IOUs denominated in the unit of account have to be convertible at par into the unit of account on demand or at expiration of terms in order to be credible.

    Bank IOUs are therefore second in the hierarchy of money under state issued money because banks have unique access to the payment system operated by the central bank, which acts as lender of last resort. So a solvent bank can always meet demand to convert its IOUs in customer accounts to state money on demand.

    In addition, governments often at least partially guarantee deposits held in as bank IOUs in case of bank failure.

    Therefore, the state’s IOUs as credits against liabilities owed to it are the most credible and secure, while chartered bank IOUs in the form of customer accounts are the second most secure. The security and credibility of all other IOUs denominated in the unit of account fall on the issuer, which is gauged through credit rating services.

    Because IOUs other than state and bank IOUs are relatively less secure, then are offset by collateral or laws that enable legal recovery.

    It’s a pretty well integrated system in which most of the bugs have been identified and worked out after hundreds of years of experience. And double entry accounting has been developed not only to keep track but also to reduce the incidence of fraud and embezzlement because it raises the bar on getting caught.

  13. But I’m not sure that that is what distinguishes money in a nonconvertible currency system from money under alternative state money systems.

    Nothing. Considered under fine enough resolution, there is no difference; it always was fiat money / credit underneath. There are no alternative state or other money systems. E.g. Wray nowadays talks about sovereign money, and says “I don’t know what fiat money means” somewhere. There is only one system that the human race has ever used, only one thingie that anyone has ever accepted or can accept to cancel an obligation owed to him – an obligation, a credit going the other way.

    “Nonconvertible” is a misnomer. Any money is ultimately worth what it can be “fiscally” converted into. “Fiat” money may not be convertible into gold or silver nowadays, but gold or silver was only ever so valuable because the private gold miner / minter could convert it into the valuable fiat money of some (mercantilist) fiat money / credit issuer.

    Modern fiat money is convertible into remission of tax obligations in general – the legal / recognized right to earn such an income, or do business etc. In particular cases like a head tax, you can think of fiat money as a coupon you buy your own head with, or in the case of a property tax as a rental coupon. People like their own heads or houses, so are happy to convert their fiat money into them.

  14. Right. What MMT says is that a floating rate monetary system affords a government more policy space than a fixed rate system. This implies that there needs to be sufficient reason to give up policy space.

    Advocates of a system with a commodity apex in the hierarchy of money argue that convertibility of a currency into something of real value acts as a price anchor against inflation and forces fiscal discipline on a government, a consequence of which is reduced policy space.

    However this is specious reasoning:

    Even coins minted from precious metals are not directly convertible to something of real value owing to seigniorage, and the fixed rate of exchange of paper may diverge from a market rate. There is no way to fix the value of a currency independently of time and changing conditions.

    This is a reason that fixed rate convertible systems have been abandoned historically in times of duress in order to open up more policy space. Thinking otherwise is just idealization that abstracts from reality as shown by history. Changing political conditions force governments to open up policy space.

    In addition, even in ordinary times, monetarism, which is what a commodity standard is designed to implement, is inefficient and ineffective in that by limiting policy space is results in idling resources otherwise available for production in order to impose “discipline” in the interest of price stability. For example, employment is sacrificed to price stability at great real cost to an economy in terms of economic underperformance and degradation of human resources, with attendant real social costs as well as financial.

    Moreover, the goal of taming inflation through anchoring the value of a currency to a commodity is also futile based on the causes of inflation.

    First, the price level can rise from the supply side as well as the demand side, and supply shortages, such as petroleum, are not effects of monetary causes and cannot be addressed effectively or efficiently through this channel. It’s not creating too much money that is the issue here. Rather it is a contraction of supply, which btw accounts for “Zimbabwe.” Ill-conceived distribution of formerly productive resources in the interest of greater equality resulted in destruction of productive capacity, and the government’s inability to deal with the crisis led to the hyperinflation.

    Secondly, the monetary cause of demand side inflation comes from government allowing demand to push the capacity of an economy to expand supply to meet it. MMT argues that its fiscal approach addresses this more efficiently and effectively than an approach based on monetarism using either adjustment of interest rates or the monetary base.

    To summarize, the underlying point of MMT as “neo-Chartalism” is that the monopoly enjoyed by a currency sovereign provides the policy space to fashion an economic policy that harmonizes the trifecta of growth, employment and price level, which other macro approaches consider to be impossible to reconcile and therefore believe that there must be tradeoffs.

  15. E.g. Wray nowadays talks about sovereign money, and says “I don’t know what fiat money means” somewhere.

    Seek help. Seriously.

  16. “Considered under fine enough resolution, there is no difference; it always was fiat money / credit underneath. There are no alternative state or other money systems.”

    I can’t remember where it was I first saw this referenced, there’s a good chance it’s redundant to some/many/all but this paper takes up that debate within the context of post-keynesian economics and makes (I think) a very persuasive case in support of the “there is only one system” view:

    Endogenous Money: The Evolutionary versus Revolutionary Views


  17. Trixie: Seek help. Seriously. Happy to do so, and I’m starting by asking you what you mean here. 🙂 – Wray’s views, statements should be easy to find . . .
    Geerussell- thanks for the interesting paper. Mitchell-Innes, as referred to there, decisively argued for “only one system” (even conceivable) – which philosophers had earlier come close to.

  18. I’m tired, about to go to sleep. I’ll look for both. I am not making up either; I think most people at MMT sites would trust my word. But I apologize for not replying to you or Peter (whose extolling the BIG over the JG I was shocked by) back then- I think I had a long reply with the cite on a computer that has been having severe problems, and didn’t think you were still interested. But if I see someone making a surprising uncited quote, I usually google it and find it.

    On the first topic, because they understand money plutocrats do and always have preferred the unbelievably moronic, sadistic, unworkable, top-down and tyrannical BIG to the libertarian as-bottom-up-as-possible JG that they hate and fear so much. For old but revealing quotes look at Victor Quirk’s great paper on the Job Guarantee of 1848 – Nassau Senior liked the BIG- equivalents of the time, because unlike a real JG, they could be made as “degrading” as possible. That is what BIGs inevitably must become and always have become. Unlike so many intellectuals, ordinary working people, poor people everywhere understand money well enough to see that BIGs are basically shit, tricks of plutocrats foisted on the poor by obtuse intellectuals who mostly hold the poor in contempt. Wray has often written to that effect – I am just adding just a bit more emphasis.

    There was some cheerleading for a quasi BIG at Pete Peterson’s site – at least that is how another commenter at naked cap IIRC interpreted it, as well as me – think they were proposing helicopter drops rather than welfare spending or something. I think people who are more familiar with NEP & Wray’s writing would not be surprised that he said he didn’t know what fiat money means. In any case, I will try to dig both up.

  19. I think I understand what you mean with Randall Wray on fiat money. I remembered him commenting on the term in a multi-part video back in 2009 when interviewed with Bill Mitchell by Victor Quirk, shot in Newcastle, Australia. Wray indicated a preference for the term sovereign currency (at 4:44 – 5:21 of this video as part of the response to question 3). Mitchell seemed satisfied with the term fiat money (at 1:25 – 1:42 of the subsequent video concerned with question 4). The entire interview, which is very good, begins with this video.

    There also appears to be an ambiguity in the terms ‘modern money’ and ‘modern monetary system’. On the one hand, perhaps the reason (at a guess) that Wray prefers ‘Modern Money Theory’ to ‘Modern Monetary Theory’ is that Keynes referred to state money of the last 4,000 years or longer as modern in the sense that it has been chartalist. On the other hand, MMTers have tended to distinguish flex-rate inconvertible currencies from alternative regimes because of the wider policy space provided. Mitchell has discussed (for example, here) the three currency features (public monopoly, fiat, flex rate) of a ‘modern monetary system’ (modern, here, referring to the post Bretton Woods era). To me that is a worthwhile distinction. It helps for instance in understanding the current problems in Europe. But maybe such a regime and its currency features should be denoted by different terms. I don’t have strong feelings on that.

    I don’t necessarily disagree that ultimately all state money could be said to be fiat. The state will determine one way or the other the terms on which the currency is issued. But the term fiat has typically been understood to apply to a currency that is not convertible into a commodity at a fixed rate. Similarly, we could say as you suggest that in a sense all state currencies are convertible because they are convertible into a remission of a tax obligation. But the term inconvertible when used to describe a fiat currency has also typically meant not convertible into a commodity at a fixed rate.

    If we go down this path (and I’m not necessarily opposed to losing the particular terms ‘fiat’ and ‘inconvertible’), it seems we are giving up useful distinctions that point to practical differences in likely outcomes of different currency regimes.

    Along similar lines, couldn’t it be said that in a sense all currency (not just state money) is sovereign, because (i) issuance of any currency within the nation is permitted or not permitted ultimately at the say-so of the state and (ii) any decision by the state to adopt a common currency can always be overturned at a later date so that the common currency is still really a sovereign currency?

    Or we could say that in a sense capitalism and communism are really the same system because ultimately society has the authority to determine the way in which it organizes itself?

  20. BTW, Calgacus, don’t be too shocked by my posts on the BIG. I still support a JG, including a standalone JG for as long as a combined program remains off the policy agenda.

    In the post in question, I was considering a future in which production becomes increasingly automated, opening the way for other activity to be freed from formal employment. In that context, I saw the JG as necessary (both for social justice and nominal price anchoring effects) but probably playing a decreasing role over time relative to (some kind of) BIG.

    But, having said that, if society prefers, even in a future of advanced technology, to keep formalizing activity through a JG or participation income rather than a BIG, I would still be strongly supportive of that over what we have now.

  21. I think that a good case can be made for something like a BIG or permanent income based on a dividend on “social capital ” that is created through a complex web of relationship that we call a society. This would be recognition that the “self-made man” at the basis of ontological and methodological individualism is just BS. The ancient Greek thinkers who founded the Western intellectual tradition to which we are all heirs argued there is no freedom worth calling human outside a community and culture.

    Maybe a pioneer that goes into the frontier alone could be considered self-made, but even then pioneers brought with them embedded social capital in terms of knowledge and skill and they usually needed some basic technology already in existence and few went alone and survived outside some community.

    I recall reading some time ago about a man who left the world behind and actually built quite an impressive environment over a number of years when he was discover and he did it starting with the only tool he brought with him. But this is an isolated story and he just happened to be an engineer.

    The challenge of society has been and continues to be harmonizing individual and community, with the extremes being anarchism and collectivism. Different societies have sought to meet this challenge differently but no society has succeeded in establishing its model as ideal. The fundamental question that the ancients asked remains open: What constitutes a good life in a good society?

    The ancients were unable to answer this in a way that we would find satisfactory because in the agricultural age most societies depended on human capital” in the form of slaves so that citizens could be free and enjoy enough leisure to educate themselves sufficiently to organize and administer a civilized society.

    The development of technology changed that by mechanizing much of the labor and providing many more with leisure. In addition, societies through their governments either fostered or mandated education. This result a standard of living, distributed prosperity, and level of security to which even the most well off had not had access.

    While it is true that some made greater contributions than others, many did not enjoy this in their lifetimes. Moreover, the rewards have been distributed unevenly by merit and contribution.

    Arguably, it’s past time to think about a system upgrade. One way to begin would be to recognize, first, that everything that has been built has arisen from the commons, and secondly, that everyone is a product of their society, to which the members contribute to shaping.

    Therefore, a society that is prosperous enough in terms of real resources and human capabilities can ensure that everyone’s basic needs are met, in the first place, and secondly, that all resources, including human resources, are being put to optimal use. This would be a step toward creating an ideal society materially, and an economy is the material life support system of a society. Societies would still differ and even be internally diverse “spiritually,” based on the unlimited “metaphysical” potential of humans and the diversity to which this naturally leads.

    The institution of social safety nets was a step in this direction, and a “grants economy” (Kenneth Boulding) would be another. There are various ways to arrange and administer this on the way to confronting the obvious issues already arising from further mechanization (especially in the emerging world), automation, robotics and AI.

    This doesn’t preclude an ELR/JG either, for as long as working is a social necessity or priority. In fact, where working is a social necessity or priority and it is possible there would be enough demand for work created, then a ELR/JG is a no brainer for all the good reasons that have already been given.

    So-called capitalism in various forms has been an improvement over feudalism. But it has not been successful in addressing they issues and, moreover, it is not set up to do, especially neoliberalism, since most forms of capitalism are based on individualism rather than communalism. The result has been continued rape of the commons and exploitation of social, political and economic asymmetries that make a mockery of free markets.

    In fact, maybe we should also be talking about social retribution in addition to a social dividend.

  22. “One of the secrets of life is that all that is really worth the doing is what we do for others”. [Lewis Carroll]

    Another aspect is: ‘Is a human being a part of nature and so determined by nature; or self-determined; or both’?

    For example, we have been given the gift of thinking; what we think about is our gift to ourselves. We have been given the gift of creativity; what we create is our gift to ourselves (read a newspaper lately)?

    In one way, the agrarian, industrial, technological, informational revolutions etc. were all prophets – promising a better life. No-one has ever been able to answer the question of what constitutes a good life in a good society because of the monkey on our back.

    This is why the Dali Lama’s religion is kindness. For me, nature leads the human being to the heart – ignoring it is the history of the world. Mind is the province of the ‘I’; the heart is the province of who you really are. We dance to two beats: one is forever consistent and certain, the other is our own.

    The last 200,000 years and every moment of the next is always about getting into rhythm. We are deplorably slow learners!

  23. Tom Hickey said: The ancient Greek thinkers who founded the Western intellectual tradition to which we are all heirs argued there is no freedom worth calling human outside a community and culture.

    If we accept this worthy view of civilisation we are inclined towards a bias against the exploitive nature of capitalism and towards the socialist principles that are associated with organised labour movements like trade unions.

    Capitalism, it has been pointed out, contains the seeds of its own instability; hence the periodic recessions and occasional deep depressions. Trade union power is better able to withstand these destructive periods because it resists the human turmoil that is normally represented by surging unemployment.

    We saw this resistance at its most virulent during the Thatcher era when there was a concerted effort by the government to overcome trade union resistance to what was viewed as necessary restructuring in large-scale nationalised industries.

    The violent confrontations that accompanied those exchanges also raises the question of whether instability is a natural element in any kind economic system, whichever wing of the ideological spectrum it emanates – it is just as easy to envisage a socialist led government having similar economic v social dilemmas.

    It could be argued that the basis for this conflict is an inherent element of the human character that generates competition; civilisation itself therefore, contains the seeds of its own instability; or should that read, destruction

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