The US Dollar Must Be Infinite, Because Real Resources Are Finite

I hate the term “money”. It is vague. I prefer taking the time to say or type “US dollars”, “British pounds”, etc. After all, when people in the US ask, “Hey, you got any money?”, they are asking, “Hey, you got any US dollars?” Bread, green, brass, bob, quid, dough, bucks – it’s all US dollars, British pounds, etc., to which people are referring. The reason for this is because the US dollar is the most widely accepted monetary instrument in the US.

People are encouraged to believe that a US dollar is some rare commodity that is dug out of the ground. Those purporting to be “educated” further the nonsense by insisting that the US dollar must have intrinsic value, lest it not be “money”, then casually inform us that the US dollars in private hands are real and anything that the US government issues beyond what it taxes or borrows is “funny money”. Part of the blame for this type of extreme nonsense arises when these educated people assume that the micro level is the macro level and there is no difference between the two. So much for education. I intend on a lengthy discussion soon concerning micro fallacies and unemployment
Let’s clear up some of these misconceptions about US dollars and modern monetary economies that orthodoxy holds to be reality. In an effort to inform the general public and facilitate proper understanding as to the nature of US dollars, where they come from and why the US government cannot go “broke”, I’m going to keep things as simple as I possibly can, using an example that might grate a bit on the nerves of other professionals and academics, but I’m speaking to layperson’s here with the intent of shifting their thinking in the right direction. You’ll have to forgive me.
Let us think about two different scenarios. Firstly, let us imagine a US where nobody produces or sells any goods or services. We will just assume that such a thing cannot be done. We will also assume that the US government has the sole authority to issue US dollars and every single person in the nation is aware of the fact. Now then, the US government hands everyone $1 million. Why?

For what purpose has it done this? What good is the “money”? Not much good, is it? In fact, unless it can transfer goods and services around, or hire labour, it’s pretty much useless.

Now then, let us imagine a US with goods and services, but no US dollars. The US government leaves it up to the private sector to decide what to do. What can be done that people can obtain goods and services? Well, Bob says he’ll accept twenty apples for one gallon of milk, because apples have “value” to Bob. Great. So, as long as you visit Bob with apples, you can get milk. On the other hand, Jane has milk, but won’t accept apples. She want’s three ears of corn for one gallon, because, to her, apples have no “value”, but corn is just awesome. So, what do you do if you only have apples but Bob is out of milk? I guess you find a way to get some corn or else you go without.

Not a very efficient system, is it? But, what if you could just exchange one thing for any goods and services produced? Ah! Now we’re getting somewhere. More efficient. The question is, what should that one thing be? Let’s assume everyone continues not being smart and ignorantly decides that goats are the “money thing”. Fine. Now, whether it’s milk, eggs, meat – whatever – it can be obtained as long as you have some goats; the price being determined by whatever the seller thinks fit for his or her’s goods and services. Bob might accept two goats for a gallon of milk and Jane, one goat. How then can this bizarre society ensure that everyone can obtain goats to buy goods and services?

There are several ways, but one way is by employing people. Rather than go through the trouble of catching goats in the wild, or stealing them, they can be earned from someone who earns them by selling stuff. It just so happens that Bob needs help milking cows, because he’s discovered that since goats buy anything for sale, he can consume lots of goods and services by selling milk. Note, there’s nothing special about Bob. He just happens to work for himself instead of someone else to earn goats. The problem is, Bob thinks he is special, because he has something that others want: milk and goats to pay others to help him increase his milk production. So, he nails an advertisement to a tree in the town centre:

“Need help milking cows. Will pay one goat per day. Apply in person at Bob Behunia’s Milk Ranch.”

Some people visit Bob and get a job. Each week, Bob pays them seven goats each out of his total goat earnings. Jane does the same as Bob. Other “merchants” are doing the same. The US government taxes in goats in order to provision itself with workers and various goods such as paper, pens, ink and whatever other goods and/or services it requires to operate. Everyone’s happy. Until, one day, the people notice that there aren’t enough goats to go around. Some have lots of goats, others not so many. The US government is about to run out of goats too. There are simply more goods and services that can be produced from the nation’s real resources than there are goats to enable all to access those goods and services (not to mention that everyone, both merchant and labour have become goat farmers just to purchase goods and services). At this rate, sooner or later people will be laid off from work. Why? Consumer demand dropped. Bob’s customers would like milk, but there’s just not enough goats to go around to buy milk, so now, they drink water. Poor Bob thought he was special, because he was a business owner. He thought he was the “job creator”, but he discovered that he’s not very special at all. Bob, Jane and other “non-special” people slash their work forces to save goats. Laid off workers quickly run through their remaining supply of goats and can no longer buy Bob’s milk, along with other goods and services. Bob’s income drops. Tax payments drop for the US government. A recession occurs.

If, in this example, we consider the goats to be “money”, then it becomes clear that when the people introduced “money” into the system, they unwittingly introduced the concept of unemployment. Because modern economies operate based on “money” – hence the term “the monetary system” – unemployment can exist.

The above example with goats as the “money thing” is intentionally upside-down to illustrate a point about “money” and its function in an economy as well as consumer spending and why business is simply not the “job creator”. In reality, the private sector does not issue, nor does it control the most widely accepted “money thing” in the US; the US government does. The US government causes all unemployment in the US, because it is the sole issuer of the “money thing” (US dollars) that we all use to hire and pay workers, earn, spend and operate a national economy. When it raises taxes, it removes dollars from the economy which inevitably reduces spending power and thus unemploys workers. The intent here is to then hire those workers to provision itself with required labour. If it taxes but does not hire the workers, then it leaves those workers unemployed. Thus, if the federal deficit is too low, unemployment is the result. These ridiculous notions of “hard work” and “pulling yourself up by your bootstraps” to get ahead simply have nothing to do with how a modern monetary economy operates, nor does it have a thing to do with what makes America, or any nation “great”. That’s pure neoliberal drivel. Such fantasies are the result of insisting that upside-down is right-ways up. In reality, prosperity can only be achieved if the US government’s fiscal policy is directed towards that goal. If the US government keeps its deficit intentionally low or eliminates it entirely, there won’t be enough dollars in the economy to produce and consume a greater amount of goods and services and then no matter how willing, how industrious, how “hard working” an unemployed person might be, he or she will not find a job that pays enough to meet basic needs and many will not be able to find a job period.

You personally might have had to work hard all your life. It is not because that’s the way things should be, nor is it because of some ridiculous notion of “that’s what makes America great”. You were forced to work hard, because the goal of the federal government’s fiscal policy was to limit access to goods and services. If you therefore want to have nice things, you have to work twice as hard to obtain US dollars, because the federal government, through inappropriate fiscal policy, is making certain that it is not spending enough dollars into the economy to go around. There is an intentional shortage of US dollars, of which the US government has an infinite supply and when there is a shortage, there will also be a shortage of jobs.

I cannot be more clear here: Somebody’s spending is somebody’s income. Consumer spending is income for business. US government spending is the private sector’s income. Business is not in charge; it is not the job creator, it is not the centrepiece of the economy, because it is not the issuer of the “money thing” that everyone uses. Business earns US dollars just like any person who works for someone else for a living. If there are not enough dollars spent into the private sector by the government to meet the population’s net saving and spending desires, consumers will slow their spending, production will fall, income for business will fall, business will lay off workers and so, involuntary unemployment is guaranteed. It does not matter how much consumers need a good or service; if they do not have the dollars to spend, then they cannot buy it and the business which produces that good or service will see an income drop. Business does not just magically increase production because consumers need or want a thing that it offers. Consumers have to be able to buy it. The act of purchasing a good or service is what consumer demand is, not the “desire” alone to obtain a good or service. The saying, “if wishes were horses, beggars would ride” applies here. Consumers can wish to own an iPhone all they want, but if they cannot buy it, what good does that do Apple? This then is why economists tend to examine consumer spending and not consumer wishing. Business will only increase its production and hire more people if consumers have enough extra dollars to persistently buy more and more of the thing that it offers. If they persistently increase their purchasing, business will be forced to hire more workers to meet that demand, or else lose market share to a competitor and eventually go out of business.

Something else we can also clearly understand from our goats example: goats are a commodity and thus, there is a finite supply. What other commodity can we think of that is of finite supply?

Gold.

And our above example of goats as “money” illustrates clearly why gold cannot be a useful monetary instrument: there’s not enough of it for every person to adequately access all of the goods and services that can be produced from real resources. When governments decide to peg their infinite supply of currencies to gold, they intentionally limit the nation’s ability to consume goods and services solely to defend their gold reserves. In other words, they love gold more than prosperity. The result? Do deflationary depressions lasting more than a decade sound good? How about a perpetual recession bias for those nations that are weak in trade? Perhaps speculative currency attacks are your thing. If you enjoy these things, then you will adore the gold standard. Gold might be pretty to look at, but it can be very depressing.

Today, currencies issued by most governments are fiat – just numbers that stretch to infinity and only the national governments have the authority to issue currencies, which are defined by a chosen unit of account. In the US, the unit of account is the US dollar. Since the US dollar is fiat, the US government can buy anything for sale, as long as it is for sale in US dollars. Therefore, there is always enough “money” available to ensure that all US citizens can adequately access all of the goods and services that can be produced from real resources. The question then is not “do we have enough money”, but are their enough real resources to satisfy the demands of the population. So, I want all of you laypersons to remember the following from this point on to the end of your days:

“Money”, or better put, the US dollar, is not dug out of the ground. It is something that is always conjured up out of thin air, which enables you to consume what is dug out of the ground.

Any person, rich or poor, can create a monetary instrument. Joe Blow, sitting in his basement, could create Blow Bucks on his computer and print out several million. That’s not the problem. The problem Joe Blow would face is convincing people to accept Blow Bucks as payment for goods and services, which are created from the nation’s real resources. If Joe could get his Blow Bucks accepted on a national scale, he’d have an infinite supply of Blow Bucks with which he could use to consume any and all goods and services for sale in Joe’s Blow Bucks. After all, he’s the issuer of Blow Bucks. You and I would have to earn them. Joe wouldn’t. If he wanted to buy Mt. Rainier and it was up for sale in Blow Bucks, he could simply create enough Blow Bucks to buy it. If he wanted to buy up every ounce of orange juice that was for sale in Blow Bucks, Joe could easily afford it.

But Joe hasn’t much authority, so he faces quite an obstacle in his quest to command consumption and real resources through issuing Blow Bucks. Joe might, in fact, become so frustrated in his attempt that he decides to scan US dollars into his computer, print them out and then spend them. Joe now faces another more serious problem when the US government hauls him away for counterfeiting. When we think for just a moment, this latter situation demonstrates where US dollars come from, who has the authority to issue them and who has the authority to punish those who try to replicate US dollars: The US government.

The US government doesn’t care if Joe creates some Blow Bucks and tries to get people to accept them, nor does it care if a grocery store creates some coupons. What it does care about is the US dollar, which is the monopoly product of the US government; the “money thing” that the federal government alone issues and the “money thing” that we all use and so, any private entity that attempts to manufacture US dollars will find its operation shut down and the person or people responsible will end up in prison. Is this then why we all accept and use US dollars in the United States? No. Taxation is why.

The US government also has the authority to tax and so, can press its own currency into wide acceptance and circulation. The tax alone is no good here unless the only thing the federal government will accept as payment for that tax is US dollars, which is precisely what the federal government demands (and what the Confederate States of America failed to understand). Without the government’s US dollars, you cannot pay the tax and the government simply isn’t going to let you off the hook if you don’t have the dollars. You will have to find a way to obtain the dollars.
One way some private entities obtain US dollars is by selling goods and services to the government in exchange for the government’s currency. In doing so, these private entities then have the ability to pay the tax and if they’ve earned more dollars than necessary to pay the tax, they can use those extra dollars for something else. They could save them, or consume more goods and services. It’s not out of spite, or hatred for the citizens of the US. In the context of getting the dollar accepted, it’s about maintaining the demand for US dollars. As long as the US government can enforce its tax collections, we will demand and use US dollars.

On this correct view, federal taxation is not theft in any way, shape or form. US dollars are issued by the US government and so, it is the government’s “money thing”, not yours. Yes, you might be allowed to earn, save, or use the government’s currency to buy a car or groceries, but that is so the economy can operate. It doesn’t imply some kind of private ownership of US dollars. US dollars remain the property of the federal government and they remain in the domestic economy and the rest of the world where the US government intentionally put them until they are taxed away and destroyed. What you buy with the government’s US dollars whilst they circulate and you can get ahold of them is certainly yours. Again, we will note here that when the US government taxes, it doesn’t demand your car, clothes, home and other goods you’ve purchased with US dollars (unless, of course, you do not pay your tax liability, in which case, the government can put a lien on or seize your property), it only demands its property back; the “money thing” that only it has a right to issue – US dollars. In short, you are free to use the government’s US dollars for whatever legal purposes you wish, but when the government demands its property back, you have to surrender it.

The purpose then of US dollars is to be a means to access the goods and services produced from the nation’s real resources. In order to ensure that such a system can result in prosperity, the supply of US dollars available to the US government must, at any point in time, always be greater than that which can be produced from finite real resources. In other words, the supply must always be infinite, which today it is. Were the supply of US dollars finite, restricted to only $5 million per year, when the real resources of the US can produce trillions of dollars’ worth of goods and services, then what could be produced would not be produced, real resources would be left idle and the economy would collapse. For those fiscal conservatives out there drooling over balanced federal budgets, that is why a balanced budget amendment is economic suicide. Get it through your heads – “Money” is not the issue; real resources are the issue.

US dollars are nothing more than just numbers with a fancy label that provide access to and keep track of all that the United States produces from its finite supply of real resources.