If there’s production there is money. It’s that simple.
“Money” is merely an agreement about value among producers that enables the exchange of actual goods, services, and labor. It’s all a reminder that to focus on money or the “policy” surrounding money is to let one’s mind wander. Production is the policy. Money can’t be planned or part of a policy precisely because its circulation is every bit the market phenomenon that production is. Money mirrors production, which means money in circulation is only limited by production.
All of this and more came to mind recently upon being sent an opinion piece by Civitas Institute fellow Dominic Pino about – you guessed it – “monetary policy.” Pino asked if politicians should control what he and others refer to as “money supply.” The very notion of a “supply” of money presumes the need for governments to supply an exchange medium in order for commerce to flourish, only for shortages and excesses to at times reveal themselves. No, money is an effect of production simply because production is the raison d’etre for money. Without production, money serves no purpose. More important, there is no money.
Which then requires a return to Pino’s initial question. Should politicians control what he and others refer to as “money supply”? Certainly not, but let’s not pretend that non-politicians can do what politicians plainly cannot. Let’s state the obvious, that an effect of production borne of infinite decisions being made every millisecond of every day around the world couldn’t possibly be planned by anyone, or any collection of “anyones.” Put another way, central planning fails always and everywhere.
The challenge is that the central planning Pino wouldn’t leave in the hands of politicians he seems comfortable leaving in the hands of economists. And those economists agree with him. The same PhDs who would nod along to the unplanned genius of markets imagine a facility to plan that which moves the fruits of market genius to its highest use. These individuals are too numerous to count, and can be found at universities, think tanks, and central banks all over the world. Their conceit is extraordinary.
What’s interesting is that those who imagine “monetary policy” a function of economists inside government, and those who think they could be the planners of same, write endlessly about how it should be done. They write of “golden” rates of money growth, of money growth that would facilitate rather specific rates of GDP, “national income,” and unemployment (these individuals refer to themselves as “market monetarists” without grasping the irony of such a descriptor), along with inflationary and non-inflationary rates of interest that they’ve graphed, charted, and mathematically happened upon.
Except that market realities continue to push back. And the pushback can be found in the relentless truth that money is where production is, and it’s not where production isn’t. While economists imagine markets functioning properly thanks to governments staffed with PhDs “supplying” the medium enabling the exchange of the plenty brought to us care of markets, actual producers turn their noses up to so-called “money supply” and “legal tender laws” given their desire to attain roughly equal value to what they bring to market. In other words, politicians and economists certainly do strive to plan so-called “money supply,” and sometimes they “print,” but their efforts more often than not result in the planned medium or printed medium disappearing from circulation.
That’s why dollars, euros, yen, pounds and Swiss francs can be found circulating in places where they’re decidedly not the local currency, and certainly not legal tender. Though nowhere close to perfect measures (see all the daily currency trading), their relative stability renders them globally utilized exchange mediums whereby they circulate where there are goods, services and labor to facilitate the movement of. Again, where there’s production there’s money. And producers decide what money circulates based on an obvious desire to receive roughly equal value for the products, services and labor they bring to market. Which means producers are the “monetary policy” exactly because money in circulation is production determined.
It’s a reminder that the question about politicians controlling so-called “money supply” is superfluous. Central planning doesn’t work, period.
