Comments: Money Is Not Real

GOLD is real, so is silver, and other metal money.

Posted by Mike Meyer at June 29, 2010 04:13 PM

Gold and silver are real things. But they are not money any more than giant stone disks are money.

Posted by Jonathan Schwarz at June 29, 2010 04:17 PM
... somehow we've decided it's a great idea to stop feeding real food to real people and cease educating real children in order to demonstrate fealty to an abstract concept.

Yeah, I always wondered about that. Or to put the same thing in another way, the hypothetical aliens must be watching struggling people and saying, "Half of them work twelve hours a day and the other half are starving without jobs. Why don't they just spread the work around?"

Posted by Cloud at June 29, 2010 04:36 PM

Mike, comic books and cowrie shells are also real. You can say anything has value, and traders will recognize that value, but the value goes away as soon as everyone quits pretending the things are valuable.

Posted by will shetterly at June 29, 2010 04:37 PM

Cloud, that's only if the aliens understand the link between the jobs and the eating to begin with.

Posted by ethan at June 29, 2010 04:58 PM

This touches on the stuff from Marx that I love. I read a book once called The Devil and Commodity Fetishism in South America by an anthropologist who talked about how the native people in South America a few centuries ago viewed money itself as the devil, with real human and devilish qualities, because when money appeared on the scene in their pre-capitalist cultures they were destroyed, as if by the money itself rather than by the social changes it brought. It was a strange book with a strange title, so I loved it. To pre-capitalist peoples, money seemed all too real.

What have been some of the burgeoning US economic sectors in the last decade or two--FIRE sector paper shuffling, often fraudulent, sometimes known as looting; war, sometimes known as pillaging; and various forms of la dolce vita or hedonism, namely music; social networking; alcohol; drugs; gambling; sex, including but not exclusively porn; and fast food and junk food.

It should surprise no one that when societies began to overspecialize in nonproductive and even destructive economic activity, things start to go bad. That may be masked by a boom cycle for a while, which was what Greenspan was up to (may he rot in hell), but it can't be masked forever. The bust will follow and wreak even more havoc and people eventually have to make useful products or become paupers.

Or both, if the bankers call all the shots.

Posted by N E at June 29, 2010 05:19 PM

We have certainly reached an unprecidented level of decadence when todays Alchemists no longer try to turn base metals into gold but turn shit into more shit, and then extract value from it for themselves.

Posted by demize! at June 29, 2010 06:50 PM

Jon, it sounds like you should join The Garden Party.

Posted by Bruce F at June 29, 2010 06:54 PM

excess national debt: somebody is not being taxed enough.

excess individual debt: somebody's wages aren't going up fast enough.

"They" aren't going to give up that fictional money any time soon. might require something more than just a tiny revolution.

Posted by anonymous at June 29, 2010 07:27 PM

Well Jonathan Schwarz agrees Gold and Silver are real, BUT will shetterly puts forth the proposition that will SOMEDAY lose their value. If I may extropolate-- that one day someone with a BIG pile-o-gold can't talk other people to ACCEPT written IOU's against that pile. POSSIBLY a day when greed has left the earth.

Posted by Mike Meyer at June 29, 2010 07:41 PM


While this article is true, I believe that debt repudiation may more often lead to conflict (war or open class warfare). Any thoughts.

Posted by Ray at June 29, 2010 07:51 PM

I believe that debt repudiation may more often lead to conflict (war or open class warfare)

Debt repudiation doesn't lead to war, class or otherwise. Refusal to accept debt repudiation leads to war.

Posted by weaver at June 29, 2010 08:54 PM

One thought. You should explain your belief better than that before soliciting feedback.

Posted by Justin at June 29, 2010 08:56 PM

Mike: Gold, silver, platinum, lead (which is beating gold hollow as an investment material), are real.

So are any number of things. They aren't intrinsically valuable. Further, they are limited in supply. That's why everyone left the metal standards. There was no way to portion out the quantity of specie in any way that reflected the growth of the economy.

Historical tidbit... countries which abandoned the metal standard in the '30s, recovered more quickly than those with, "real money".

And, there have been (and will be again) times when Gold, or Silver are to all intents and purposes, worthless. Times of real hardship, when bread is not to be had. Times such as those, gold is cheap, and eggs are dear.

Posted by Terry Karney at June 29, 2010 09:07 PM

Europe’s Fiscal Dystopia: The “New Austerity” Road to Neoserfdom

By Michael Hudson

Somebody must take a loss on the economy's bad loans – and bankers want the economy to take the loss, to "save the financial system." From the financial sector's vantage point, the economy is to be managed to preserve bank liquidity, rather than the financial system run to serve the economy. Government social spending (on everything apart from bank bailouts and financial subsidies) and disposable personal income are to be cut back to keep the debt overhead from being written down. Corporate cash flow is to be used to pay creditors, not employ more labor and make long-term capital investment.

Posted by mistah charley, ph.d. at June 29, 2010 09:58 PM

This is intriguing enough that I'll do what I have been putting off and buy me some JRS to read; however, Jonathan, I'd love it if you could bait the hook a little more and post a quote explaining what the "alchemist's temptation" is.

Posted by saurabh at June 29, 2010 10:43 PM

I repudiate my debts all the time but the %$#@ers keep calling me.

Posted by some guy at June 29, 2010 11:59 PM

mistah charley, that michael hudson is a very smart fellow.

As I understand or misunderstand all this, the Wall Street guys likely tell Obrahma that letting banks suffer big losses has a multiplier effect because we have a fractional reserve banking system, and one bank's debt is another bank's reserves. If on top of that you add in all the problems that now multiply exponentially via stock and bond trading, especially in derivatives, then once markets lose stability all hell can break lose, so politicians start having cold sweats when they are told what might happen if they disrupt (i.e., upset) the financial sector too much. I bet those brainy economists can paint a very grim picture in vivid detail even if they do otherwise suck at forecasting. I have no doubt there's some pretext and Schadenfreude in it, but I think they also believe it. That was their training, plus most of them are probably more comfortable believing screwing the poor is the only real alternative, just as people once were comfortable believing that slavery was the best thing for the slaves. Rationalizing is easy.

Because we have entered what is looking like will be a protracted deflationary period, people might go back and read about the Populists and understand Bryan's Cross of Gold speech, which obviously has something to do with this issue of money. There may not be any more real booms for a while, so those who have all the money (Wall Street) will want their cash and non-cash assets to retain their value, because that's as real to them as anything gets, and the easy money is likely gone for a while. Few investors have much of a chance to start a hedge fund now or get a 30% annual report on BS mortgage backed securities, so they'll certainly care a lot more about preserving the value of what they already have. They'll certainly care more about that than about unemployment. Or whether old people get medical care or have to eat dog food to survive.

The bright side about looking back to the late 19th century is that Populism, like Progressivism after it, was about progress through organization, whether in the form of farm co-ops or public utilities or suffrage movements or union building or the demand for public schools and universities or the rest of the stuff we got used to taking for granted. It would be good for people to remember what all that organizing was about and what it gave us. Book lovers can read Charles Postel's fine book The Populist Vision, which shows those old-time Populists weren't the hayseeds that some urban academics have portrayed them as.

It's a pity that the perks of technology have made us so much more easily distracted than our ancestors, because without organizing all the understanding in the world will come to nothing.

Posted by N E at June 30, 2010 12:32 AM

All currency is in a very tangible sense, real. Even digital transfers of credit and debt require matter, and material channels through which electronic information must flow. Those same networks require very specific shapes, and configurations, crafted in the matter of the universe. Even without a datonomic form, credit which never escapes the plane of the digital is still electrons, which anyone who has been shocked can assure you are quite existential.

I know this may seem a niggling point - but the conceptualizations we use to value some exchange unit are not immaterial.

The brain, for all its diaphanous mutability, is of the stuff of the cosmos made.

Nothing is unreal, except nothing, which we have not yet even begun to describe in ordinary language except as a negation, as no-thing.

So I guess I'm going to be bold enough to declare you all wrong, not because I'm right - but because you are letting literal value judgments occlude observation.

This discussion is really, I believe, about belief systems, or lacking systematization, individual beliefs about worth and value and consequently, human labor.

In a very elementary way, everything which occurs is real.

So that what, I believe, people are saying when they declare that money is not real, or that gold has no value but what people believe about it, is far less simple to define than one might expect.

I think that folks in fact mean, with these declarations, is that the claims made about such and such (in this case, a unit of currency) do not match the operational reality. We can observe how this real tool is used, and see that its use does not match the claims made by a very specific set of persons, about it.

In everyday language, the declaration of unreality is not supported by the facts we can all observe. It must, therefore, mean something else.

In short, money is a lie.

Posted by Jack Crow at June 30, 2010 12:37 AM

Thanks, mistah charlie.

Powerful analysis. Weaves together threads that I have been trying to assemble into an intelligible pattern for some little while. They've got plans for us, for our children, and for our childrens' children. Groundwork being laid for years. The means of social control: revision of the bankruptcy laws, enactment of potentially draconian powers in recent legislation such as the PATRIOT Act, efforts to clamp down on information exchange. Enhancements to corporate personhood. Hollowing out of the State, its legitimacy, and power to effectuate social equity.

Bad moon risin'.

Check out some of the thinking over at this blog:

Analyses and possible ways forward.

Posted by JerseyJeffersonian at June 30, 2010 01:02 AM

There's an odd Philip K. Dick short story, "Strange Memories of Death," with the same basic concept about money and rent being an arbitrary game people agree to. Some anthropology pieces hit on similar points. And I heard some speaker (didn't catch the name, alas) on a liberal radio station express the same basic idea – he pointed out that a house had real value as a home independent of its appraisal going up or down, and our way of looking at things was screwy. Most of the Wall Street skullduggery seems little more than alchemy or sleight-of-hand magic tricks. Jon Stewart's bit on his million dollar car in this segment captures the insanity pretty nicely. But thanks, this was a very interesting read, and a more detailed treatment of debt specifically.

Also, in Goethe's Faust Part 2, it's the devil, Mephistopheles, who invents paper money and "solves" a financial crisis.

Posted by Batocchio at June 30, 2010 04:53 AM

I think that if an individual or a group of individuals consume more than they produce (whatever accounting mechanism is used), then they need to produce more, and/or consume less.

And as far as their debt is concerned, it sure would be nice if they started producing even more than they consume and paid back to those whose stuff they consumed before.

Posted by abb1 at June 30, 2010 05:47 AM

Great post, Mr. Schwartz, thanks! Great comments too.

A useful extended metaphor might be to consider the financial system as the nervous system of the human economy, while industry is more analogous to muscles. Perhaps the energy industry could be considered the lungs, stomach and guts. If the brain/nervous system of humanity is pointlessly starving the body, considering it to be grotesquely bloated when it is actually quite lean, then maybe the human economy has a case of anorexia?

A bad body self-image can kill you. But who could administer therapy to the entire human economy? And would the human economy ever listen and understand?

Posted by atheist at June 30, 2010 06:19 AM

Georg Simmel The Philosophy of Money for the clarification of some of these issues. There is some Wiki on the man and and a bit on the book.

Posted by No Comment at June 30, 2010 08:17 AM

jerseyjeffersonian--go seek out mistah charley's michael hudson. smart smart smart that one, and almost as eloquent as the poetical mistah charley himself.

jack crow--speaking of smart smart smart. The diaphonomous mutability of my brain has definitely occluded my observations, and then some. You're right that money isn't imaginary, or metaphysical, or supernatural, but when people overnight can go from being and feeling comfortable or even wealthy to being and feeling impoverished, without any change other than in the value of what they own, money suddenly may not seem so real anymore. And when people things get to the point where one can have a 500 million dollar bill (as I do, though a 500 million dollar Zimbabwean bill), it definitely doesn't feel real. That why to its victims money can feel like the devil himself.

So maybe money is real but calling it a lie isn't quite enough. (Don't get me wrong--your comment was masterful, and I'm merely paying homage to it.) Maybe money is a tall tale, or perhaps a cosmic joke, or perhaps better still, because it sometimes stinks so much, a fart in the face of reality. That would certainly give a new twist to the old Pink Floyd lyric--'Money, it's a gas.'

Posted by N E at June 30, 2010 08:17 AM


A principled comment, but it misses how the game is presently played. Those who have to pay back the debt are not at present typically those who received the loan proceeds, and that's true whether the debt is governmental (where the money often goes to cronies of officials or disappears into accounting mazes but is repaid by taxpayers) or corporate (because the thieves have sold their shares and moved on before the cops arrive).

As for individuals, I bet the lion's share of the debt isn't attributable to stuff that was consumed before. Mostly it relates to hidden fees and costs. And if it does relate to stuff, that 'stuff' was educational and medical expenses that is too costly for most people to pay back because we have institutionalized ripping off the sick. Sure people should pay for things, and many people will even when they shouldn't really have to. The lazy grifter part of the population, the descendants of the old lumpenproletariat, is just a piece of the problem. And not the biggest piece.

The more astute members of the elite can avoid this problem of having to pay for their 'stuff' (and miscalculations and even crimes) by use of the corporate vehicle of limited liability and the government vehicle of 'public service', so they therefore much less freqeuently have to pay back the fruits of their borrowing, including ill-gotten gains. Trump has been bankrupt a couple of times now and he still seems to be pretty flush. As usual, there are two sets of rules.

Posted by N E at June 30, 2010 08:38 AM

JRS (Saul, not Schwarz - hey, their initials are identical!) says or implies somewhere in his definition that the US has defaulted on its obligations in the past. Is this true? When? My understanding is that the US Treasury has never defaulted. So what is he referring to?

Posted by Aaron Datesman at June 30, 2010 11:03 AM

The way stuff is distributed inside an economy is a separate issue; if a majority of the citizens don't mind giving Donald Trump huge amounts of stuff they produce, they are most likely a bunch of idiots, but that's their own problem.

I was talking about external debt. What usually happens there, is that a country would devalue its currency (or the value of its currency would fall naturally), so that imports become more expensive and domestic production more competitive. It's quite simple, really.

Although, of course, it's not simple during a global recession; that's a whole different game.

Posted by abb1 at June 30, 2010 11:11 AM

Bruce Sterling:

Large financial centers in certain cities around the planet are certainly going to kill millions of us by destroying our social safety networks in the name of their imaginary financial efficiency. You're a thousand times more likely to die because of what some urban banker did in 2008 than from what some Afghan-based terrorist did in 2001. Financiers live in small, panicky urban cloisters, severely detached from the rest of mankind. They are living today in rich-guy ghetto cults. They are truly dangerous to our well-being, and they are getting worse and more extremist, not better and more reasonable. You're not gonna realize this havoc till you see your elderly Mom coughing in an emergency ward, but she's going there for a reason.

Posted by mistah charley, ph.d. at June 30, 2010 11:21 AM


Surely you have noticed the similarities between Saul's analysis of debt and the wisdom of the ancient Israelite observance of sabbath and jubilee? The Israelites, to my knowledge anyway, were the first society to discover and institutionalize the regular relaxation and forgiveness of debt. It is an ancient wisdom that we surely need to rediscover.

Posted by Steve in Iowa at June 30, 2010 11:21 AM

"Yet somehow we've decided it's a great idea to stop feeding real food to real people and cease educating real children in order to demonstrate fealty to an abstract concept."

It's not like this hasn't happened before. See Ireland, from 1846-1851. Landowners kept exporting all kinds of produce for sale in England while Irish tenant farmers starved due to failing potato crops.

Posted by Jim at June 30, 2010 11:26 AM


Posted by No Comment at June 30, 2010 11:48 AM

Steve, the Israelites may have recognized it, but the Jubilee was not practiced by them.

Also, the sin of Onan was not about masturbation, it was about robbing your sister-in-law of her property.

Posted by Jeff at June 30, 2010 12:05 PM

"IMF, dirty MF / Buried under mounds of insupportable debt."

Bruce Cockburn: still timely, even after the complete failure of the policies discussed on the "developing" nation "test cases."

So much for looking at the evidence.

Posted by Ken Houghton at June 30, 2010 12:32 PM

Anyone who wants to ruminate on the life-work of the master of use value and exchange value and the nature of Capital can of course browse through Marx's Capital online, and even download it free! Personally, I never read more than about a page, but it fascinates me.

Ireland, India--the destruction of local economies and people by commodity exchange is something Marx looked at closely, of course. Jim is right this is nothing new. Karl Polanyi's The Great Transformation--a crucial book that I actually have read all the way through--gave me my first real sense of how extreme the attack of capitalism on society really is, and it also gave me an epiphonous realization that the attack is still very much underway.

I hope Steve in Iowa will share how he knows that the ancient Israelites practiced and perhaps introduced debt forgiveness. That would be consistent with the Righteousness Commandment, which the Romans didn't much care for, and I'm intrigued.

Posted by N E at June 30, 2010 12:43 PM

I'm reminded that there are several places in the Old Testament where it instructs debts to be forgiven every seven years. It is the Biblical root of bankruptcy. So not only Greece but ancient Israel flourished under mandated default. It is our Judeo-Christian tradition.

Posted by Southern Beale at June 30, 2010 01:22 PM

@ Jeff and Southern Beale:

Anthropologist David Graeber has done interesting work on historical institutions that mitigate against the excesses of debt. Mosaic jubilee is one of those institutions (perhaps the earliest?).

Niall Ferguson looks at an earlier forgiveness of debts in Mesopotamia, so perhaps I spoke too soon.

In any event, these historic institutions seem to have a salutary role in rejuvenating stagnating societies/economies.

Posted by Steve in Iowa at June 30, 2010 01:55 PM

steve in iowa--fascinating, tks.

Posted by N E at June 30, 2010 02:52 PM

A bank board would have to be FORGIVING. A group of bank directors would have to be willing to forgive a lot of peoples debt, in fact, EVERYONE'S debt. I just don't see it happening. Maybe their own debt?

Posted by Mike Meyer at June 30, 2010 05:17 PM

Mike Meyer, if you want to understand modern economics, look at how the value of diamonds has been manipulated by De Beers. Gold and silver are not inherently things of value. They're just commodities.

Posted by will shetterly at June 30, 2010 06:59 PM

I second the Great Transformation--a very good book and a good antidote to market fundamentalism. Joseph Stiglitz wrote an admiring preface to a recent edition. (Stiglitz being one of those mainstream economists who seems like a decent person).

Posted by Donald Johnson at June 30, 2010 07:55 PM

GOLD&SILVER, good for nothing, can't eat it, can't drink it. The only time its much good is if someone else wants it or make a statue or a lamp out of. Basically the only real use for it is to buy society and civilization, the products, services and benefits thereof. Otherwise one could live quite well in a cave somewhere and eat roots and grubs.
With enough gold one can live 5 star.

Posted by Mike Meyer at June 30, 2010 08:05 PM

I'll have to look at Saul's book, though the preview at doesn't make me eager to spend money on it. I like the picture of the nose/penis on the cover, though.

Myself, I'd recommend Raymond Williams's Keywords in addition to The Doubter's Companion. Williams lays out the history and usage of a number of important concepts, and I keep going back to it for information. Williams told the editors of the New Left Review that one reason he wrote the book was because:

I was constantly distressed during my years in adult education at the blocks people encountered when some perfectly necessary concept was used, and the easy way that could slip into anti-intellectualism, or the more unfortunate case of somebody who comes across a word but doesn’t fully understand it, yet starts to use it, often in the labour movement. … I had a very strong sense, as in everything else, that working-class people needed to command all the tools with which social transactions are conducted. Today, I notice people using Keywords who would not be interested in any of my other books, because they bump into one of these words and want to look it up. I deliberately included some terms in it because I felt that people did not know their more interesting and complex social history, and so were often unsure about employing them, or recoiling from one of their meanings which had been heavily put to use by ruling-class papers or publicists. I wanted to give them confidence in their ability to use these terms.
Posted by Duncan at June 30, 2010 10:24 PM

I am unfamiliar with Raymond Williams, though I probably have heard of him, so I looked him up on Wikipedia, where he sounded rather like a familiar sort of British leftist to me. But my interest was piqued by a statement that he was surprisingly critical of Orwell, so I looked up and read bit of his thoughts on Orwell, and to me Wikipedia did Raymond Williams a disservice. I must admit that his views of Orwell were critical, but mostly in the best sense of that word. Whatever else could be said about Williams, he was certainly blisteringly smart, and the intellectual integrity of his opinion of Orwell greatly impresses me. Magnanimity in criticism without a loss of honesty or insight is rare.

Posted by N E at July 1, 2010 12:05 AM

"Money is not real. It is a conscious agreement
on measuring abstract value."

Regardless of the accuracy of the first sentence
in your quote from John Ralston Saul, the second
sentence is too abstract a formulation.

A better forumulation would be, "Money is a
form of promise." (Specifically, a promise to
give some unspecified something in the future.")

To verify this, consider the sentence "I gave
him money." Which of these is a more accurate
paraphrase of that sentence?

1. "I gave him a conscious agreement on measuring
abstract value."

2. "I gave him a form of promise."

Further, when we deposit money in the bank (that
is, make a loan to the bank), they promise to
return our promise. When the bank invests the
money, the borrower gives a promise to return
that promise to the bank. And so on.

Basically, our monetary system is a house of
cards, build of promises upon promises.

And defaulting on a debt is essentially (not
merely tangentially) the breaking of a promise.

Posted by RJL at July 1, 2010 10:36 AM


This is fun.

Maybe money is a form of promise by its issuer, but when I give someone money I don't just give them a promise, I give them an asset--specifically a negotiable instrument--that possesses value to me and that I own. Therefore, I can use money and buy stuff not because I promise to pay, but because I can pay. And if I'm paying with just a promise, it's someone else's promise, not mine, and I can do that because that third party's promise has become a THING that I own through legal and social rules. So perhaps a promise is a thing and a thing a promise, dialectically speaking, of course.

Posted by N E at July 1, 2010 11:11 AM

Used to wuz American Paper Money PROMISED the bearer so much GOLD or SILVER. A Reserve Note, on the other hand, promises---????

Posted by Mike Meyer at July 1, 2010 04:12 PM

Mike Meyer

You ask what the reserve note promises instead of gold or silver. I suppose Michael Hudson would have a more refined answer, but I'd say the following: Protection.

The protection that is promised--and delivered--takes different forms, but stability is what its all about.

Protection against social democratic impulses is what the Saudis and those other Gulf monarchies pay to keep from learning about guillotines and firing squads. That's what they get in return for accepting dollars as payment for their oil.
They are corrupt through and through and could never survive without external support from the United States.

Protection against the encroaching welfare state and a resurgence of dangerous national militarism is what Japanese and to a lesser extent German and other EU corporate interests (and also American corporate interests) pay for an international regime in which they can keep growing, as is necessitated by capitalism, whether that growth takes place in the Balkans or Eastern Europe and the Former Soviet Union ("FSU") States or the rest of Asia. The other great capitalist states don't need to finance their own militarism, because they have ours.

Protection against destruction by the West is the price the Chinese pay for their largest bargaining chip, a vault so full of dollars that at any time they can, if they need to, destabilize the whole balance of international trade. That's suicide too, so it's not a chip the Chinese want to use, but they'd rather use it than be victimized as they were for the past few centuries.

The sort of international economic regime we have now, as summarized above, is certainly no more sustainable in the long term than was the international regime based on the gold standard, so eventually all hell will break lose and likely lead to a world war of phenomenal and possibly total destruction UNLESS we homo sapiens sapiens get smart and create stable international institutions resillient and strong enough to get our uncooperative and selfish species through those periods of instability that inevitably result from the kind of exponentially increasing change that capitalism and technology make.

The general content of this comment is likely playing in the back of more than a few minds of political decision-makers, aka Deciders, when the economists talk about the consequences of destabilizing the international economy. At least that's true for the smarter Deciders, because it was such an economic destabilization that led to World Wars I and II. Any real World War III, as opposed to the constantly invoked rhetorical version, will likely be vastly worse than its predecessors. High stakes indeed.

Though it's a long shot, there's only one sure way to stop it: Human beings of the world, unite!

Posted by N E at July 1, 2010 06:06 PM

You might like to read Margaret Atwood's lucid and humorous Payback, based on the lectures she gave on Canadian radio soon after the financial collapse.

Posted by The Creator at July 2, 2010 05:29 AM

NE. A Federal Reserve Note promises NOTHING, zilch, zero. Reach into YOUR wallet and pull one out. Its an OFFICIAL DOCUMENT---read it and see what it promises.

Posted by Mike Meyer at July 2, 2010 04:14 PM

I know Mike. The question I was taking a crack at answering is why, given what you say, the Gulf States and the Chinese and the Japanese and to some extent even the Europeans are willing to hold trillions of dollars of Federal Reserve notes.

Because they all do hold them, and they have some reason for doing so.

Posted by N E at July 2, 2010 04:33 PM

NE: Yeah, I know. I was discusing PROMISES not lies. Most people will believe ANY number of lies, but promises---???

Posted by Mike Meyer at July 2, 2010 07:12 PM

Mike: I was thinking of promises too, or rather something more like what in law is called "consideration"--what one party gets in return for what it gives. What I was identifying is what all these various holders of Federal Reserve notes GET in exchange for their willingness to hold trillions of dollars. They all do get something, and something that I think is more meaningful than just a promise, even if it in some cases just amounts to staying alive. It's not a lie--it's quite real.

Posted by N E at July 2, 2010 07:51 PM

For those of you who are science geeks as well as political geeks, Neal Stephenson has written some excellent historical fiction on this subject. One of the major themes in his Baroque Cycle trilogy is the origin of modern currency and its relationship to empire. The first book, Quicksilver, can be a little hard to get into, but the series is definitely worth it.

Posted by JMC at July 2, 2010 08:01 PM

The grand Danny Devito said in a heist flick (inspiringly titled "Heist").

"Everybody needs money. That's why they call it money!"

I love that quote because despite the fact that it doesn't seem to mean anything, it sure sounds like it does. At least with Devito's delivery. ;)

Semantic spooks abound.

Posted by BenP at July 3, 2010 02:40 AM


Posted by Mike Meyer at July 3, 2010 02:44 AM

N E,

The Chinese have already got what they wanted: a pause in the automatic rebalancing that occurs under a floating exchange rate. That they can later buy something with those US dollars is a side benefit. If they do spend the dollars they have, they are choosing to end the pause in the automatic rebalancing.

Read Bill Mitchell or Warren Mosler yet? I know economics seems dry, but it can't be separated from politics. Reading their stuff is at least as subversive as reading ATR.

Posted by Jeff65 at July 3, 2010 08:23 PM

This has me thinking of something I read that I can't seem to mentally place. The gist was that when currency itself becomes either cheapened, have you seen some of the new US. Coinage, or more eleborate, our paper currency, this is indicitive of, and this is where I draw a blank. Any of you sexy, erudite folks of indeterminate gender wanna take a crack. I think Alzheimers may be setting in.

Posted by demize! at July 4, 2010 01:14 AM

As I told more than one stripper , " It'd just dirty paper dear, it's just dirty paper. "

Posted by Colorado Bob at July 4, 2010 02:47 AM


I haven't read Mosler or Mitchell yet, though I'll get around to it eventually. I confess that I get confused about macroeconomic basics and make dumb mistakes too often. In my comment, I was talking about something a little broader than gains that can be made from exchange rate imbalances, or automatic rebalancing.

I was taking a crack at specifying the systemic reasons that other countries are willing to hold so many hundreds of billions and even trillions of dollars in Federal Reserve notes taht aren't backed by gold or anything else. Sure the Chinese try to profit from delays in exchange rate adjustments, just as everyone tries to profit any way they can think of, but to hold so much treasure in Federal Reserve notes I think they have bigger reasons that involve the interplay of politics and economics that you correctly identify. Basically it's about leverage they need to constrain our ecoonomic AND military options. I think it goes way beyond purely economic calculations involving maximization of their economic position, let alone just the foreign exchange aspect of their economic position. But as I intimated, I don't consider this opinion that I hold all that reliable. I'm whistling out my backside a bit there, much moreso than when I make crazy conspiratorial comments that most people presume are whacky. I'll try to get to Mosler and Mitchell and learn more.

Posted by N E at July 4, 2010 10:38 PM

NE: NO ONE can buy a barrel of OIL anywhere in the world without dollars.

Posted by Mike Meyer at July 4, 2010 11:50 PM


I believe that's generally but no longer entirely true.

But regardless, what I was taking a stab at stating is why other countries agree to be paid in dollars. The reasons vary from country to country, but those reasons are what presently holds the international economic order together.

Posted by N E at July 5, 2010 01:09 AM

NE: Perhaps the IMF requires payback in dollars?

Posted by Mike Meyer at July 5, 2010 02:36 AM

i second jeff65's recommendation of Mosler and Mitchell and their theories on macro-economics. better than reading some pompous ass like mankiw for starters, and mitchell has a pretty funny side to him as a bonus.

if you are at a loss at where to start, i recommend starting here (specifically page 4 of category archive titled 'debriefing 101')

Posted by almostinfamous at July 5, 2010 07:42 AM


Currencies are convertible via exchange rates, so paying back a debt in dollars or euros shouldn't matter that much. What matters is nations being willing to hold onto dollars and dollar-denominated assets. If nobody would do that, or accept payment in dollars, the US would have a big problem, because the US wouldn't be able to maintain its trade deficits, i.e., buy all our oil, japanese and korean cars and other high-end stuff from them, and also hundreds of billions of dollars worth of chinese crap.

So these other key exporting nations need to accept the current international trade regime. I was just saying what they get out of the whole arrangement.

Posted by N E at July 5, 2010 04:30 PM