What is Money?

[@annamchugh1202]

That's really interesting. I liked the euphemisms about how the government intervenes in exchanges between entities to 'establish' an economy by mandating the use of their tokens and 'requiring' people to return those tokens in the form of taxes. It seems as if the bit that doesn't get mentioned is the bit where brute force is, or perhaps historically was, used to make people enter that treadmill of exchange and government-supervised deferred debt. It's actually really depressing when you see how much of it is based on intervention and threat. :(

[@PEGSInstitute]

We've just been having a little debate based on your comment. On the one hand some modern societies, and likely plenty of historical ones present at least the illusion of freedom of choice. If I had the desire and means to go somewhere else if I didn't want to pay taxes then that's technically possible in many places. So by not doing that I theoretically am consenting to taxation by reaping whatever benefits are provided to me by government. Of course that's not true of all modern economies and I'm sure you're right there was plenty of violence to enforce taxation throughout history. In the hypothetical world where taxes (and therefore reception of government services) are completely voluntary I would imagine MMT would be far more popular as the government would effectively be in competition with other governments. Why give your money to a government you don't like if an international government can offer you more?

[@PEGSInstitute]

Thanks for watching! Like and subscribe if you enjoyed this video. If you like what we're doing please consider donating to us over on Patreon www.patreon.com/PEGSInstitute or come chat to us on Twitter twitter.com/PEGSInstitute We're going to be releasing more videos covering economics and other topics, but the more we do the more work it takes to make sure the information is accurate and videos are always improving so any support or feedback is always welcome.

[@hindigente]

Great presentation. I'm curious about how the argument would change in the case the state does not issue its own currency.

[@PEGSInstitute]

We've got a video going into this part of it in more detail coming up for the future, but it basically means their ability to spend is limited by the amount of currency they can collect from taxes or other sources, or can borrow, so in that instance a national government without it's own sovereign currency is just like a state government or a business. They are a currency user like the rest of us.

[@real1t1ychek]

It's also worth posing the question how does such a country even begin, without having previously had a Gov issue currency? The net savings of the Non-Gov sector can only come from - precisely, to the penny - the net of taxes money issuance of the Gov. Thus, if no entity ever issues money (with no repayment obligation attached) the citizens of that country cannot have any net savings in that country, in total. It's not clear how a country or its monetary system could begin or operate without any net savings. The obvious conclusion is - like the Euro currency zone - that when Govs cede the authority to issue money, they can only do so on the basis that prior net savings existed in the original currency, and it is only that amount which can carry forward with the new currency. For example, the net savings in the Euro would be limited to those that existed before introduction, and, importantly, cannot grow. The only 'official', Treaty legal way the money supply in Eurozone can grow - as they always need to, as economies and populations grow etc. - is for the debt to private banks to increase.... some would say, very nice for the bankers, and wonder why no mechanism for unencumbered net savings to be increased was devised - ie by periodic spending made by a central authority using issued, not borrowed currency. But the plot thickens for the Eurozone... because despite the official denials, a back door method for the (only) zone currency issuer - the ECB - had to be devised back in 2012, or the Euro currency would have collapsed. This method is the ad hoc purchase by the ECB with new money of various countries' debt, and effectively warehousing it forever. Thus, in reality, the Gov budgeting and whether a country can thrive, or not, of all Eurozone countries is determined by no democratic process and merely left to the handful of ECB board appointees, even merely the appointed chair, of the ECB. So, if your question arose because you live in a Eurozone country, you should be concerned that no democratic governance over the economy exists there. And the EU Commission etc. are lying to citizens when they pretend otherwise.

[@valardohaeriz5163]

You have such a great voice, I hope you succeed in your newly found KZbin career :)

[@PEGSInstitute]

Lovely of you to say, thank you so much!

[@Vafa_ev]

One of the best videos on the internet, easy to undrestand and also the visual is at the peak. Would you please tell me what software has been used to create this video?

[@annrogers2153]

Really good explanation

[@manumiu]

You've just explained MMT (modern monetary theory) in this video. It's not true that we're already using MMT but unfortunately we're getting closer to this model every year. At least that's what all the rent seekers would love to implement, because they would profit from MMT even more.

[@PEGSInstitute]

The gold standard ended in practice decades before 1971. Nixon just formalised it.

[@Gongagoo]

Great stuff! Hope to see more in the future. There's not enough straight-talk about our money these days, even on KZbin. Hope you do a video on national "debt." Drives me mad that we have all the people and resources to be great, but limit our thinking with questions of "how to pay for it." You'd think making the money would be the easy part!

[@PEGSInstitute]

We've got some stuff on this in the pipeline. We're covering the basics first, but government debt will be a subject we tackle soon

[@jessieplexer]

Interesting video, explains quite a lot about why different macroeconomics approaches exist

[@Anonymous-md2qp]

The final myth about the government collecting taxes is the one that shocked me the most. On my tax return I receive a breakdown of where my taxes are being spent as a percentage. Are you telling me that is a false statement?

[@PEGSInstitute]

It absolutely is. It's just to make people feel better about giving up some of their earnings. It's hard to convince people that paying tax is what gives currency it's value. Our next video goes into the role of taxes a bit more. It will be released on Monday.

[@organicportalphobic9601]

How about the national debt?

[@annamchugh1202]

Also, I don't understand the circularity of the statement that "by creating a currency the government was creating a promise that they would honour repayment of that debt in exchange for the currency." How could they repay the debt except with more currency? You hand over your debt-sticks, and they just give you more debt-sticks back, unless they actually give you the bullion against which the debt-stick is rated. Except that we don't do that any more - because it's not really tied to anything except bigger debts. So your debt-sticks, and your debt-stick account, is basically a fiction of numbers and, fundamentally speaking, worthless. Or am I wrong?

[@PEGSInstitute]

No, you're spot on. It's more simple to think of it in terms of coins. The coins would in theory be exchanged for their weight in gold. This doesn't ever really occur, because no one wants the gold anymore than they want the tally stick or the coin, but the offer is there. It's more a way to quantify debt. The debt never actually has to be paid, as it can be exchanged for more debt. Sounds a bit mad, but that's why so many people get confused.

[@EvsEntps]

The 'debt' here is the tax the government may levy upon you at any moment in the future. The 'promise' the government made to you when they gave you that money is that you can use the money to alleviate such a debt. The only way to get this money (legally) is to exchange your labour for it, either directly with the government or with private individuals who have accumulated is and now want to spend it. This is how an economy works at its most fundamental level.

[@asadjuttasadasadali8401]

Nice sir ap buht acha smjhaty hain

[@nsg_kuunda4786]

Okay. But then why does canada pay so much in debt servicing??

[@TheJayman213]

Great explainer.

[@Anti-CornLawLeague]

Michael Hudson?

[@annamchugh1202]

Are we 'allowed' to just go back to bartering? In the UK we used to have Bartercard, but the government got very hot under the collar about that and made efforts to quash it. Are Australians allowed to do something similar or do you HAVE to use currency in all exchanges?

[@Anonymous-md2qp]

Anna McHugh I just looked that up of the Australian Taxation Office (ato.gov.au) site because I was interested to know myself. Bartering is legal in Australia but it doesn’t look like it is widely used.

[@PEGSInstitute]

We're not really going "back" to bartering, because it wasn't ever really used. Theoretically there's nothing stopping you from bartering, if you can find something people are willing to exchange for goods and services, but both you and the people you're trading with will get a bill from the ATO at some point, so you'll need to make sure you have enough currency to give to them when that happens. This is why the Australian dollar has value to Australians, because everyone needs a supply of it to give to the tax office. I suppose they don't otherwise care how you trade, as long as it doesn't impede their control on the economy.

[@bruhdashno]

Could money sistem can be shut down?

[@leviscurrah]

Apparently tax gets reinvested according to all the sources shown on google 😅

[@PEGSInstitute]

Not sure that'd pass as a valid citation in an academic journal.

[@SeanOCallaghan0106]

How do Euro countries get money? The ECB buys their bonds correct? How can the ECB decide how much money should it give (or how many bonds should it buy) to Euro countries? I live in Italy and many economists here are denouncing the 20 year long practice to have a taxation that exceeds the aforementioned money input in the economy. Basically a super austerity. This is leading to the collapse of the public sector and to massive privatisation. What do you guys think about it?

[@PEGSInstitute]

Strongly recommend this paper about the mechanisms of the ECB www.tandfonline.com/doi/full/10.1080/09538259.2023.2298448

[@SeanOCallaghan0106]

@@PEGSInstitute Thanks!!!

[@ThomasVWorm]

2:30 this is wrong and misses the point. Before the state can collect taxes it demands taxes. The difference is more than subtle, because demanding a tax means indebting the population, which creates their demand for the currency. If we are picky, the amount of tax the state demands is the amount of money the state can create and spend. And it is the amount of an extra supply, the population must create beyond its own needs, in order to sell it to the state and get the money to pay the tax. Since a real economy is very complex, being that picky makes little sense. But it helps to understand, what money is all about. Private credit works practically the same, except how the debt is created: the debtor indebts himself by buying on credit. The constraints are the same too: the individual cannot stand more debt than it can produce and sell. The limit of the state is the sum of this constraint of all individuals combined. The state cannot tax, spend and buy more, than the population can produce and sell.

[@Amina-t8l9e]

Money is what to use to buy what we need

[@subbagamingytNl]

What is money???? My ans :-Money is the thing that if you have more than it, then it is far from your own even if you are near it, and the person who is not near, or even if he is near, is away

[@kingot9181]

Weird how numbers are more valuable then almost anything in this world

[@Joshkie2]

Recorded history.... so if it did get written down it just did not happen.?

[@PEGSInstitute]

What didn't happen?

[@Joshkie2]

@@PEGSInstitute That bartering as a means of trade was a myth. And you used recorded history as if that was the start of economic thought. Is if societies just spring forth with fully formed writing systems and economies. We still barter today, you ever collect and trade Baseball Cards? As a modern example.

[@PEGSInstitute]

We never said barter never existed, we said the anthropological evidence shows that debt was the primary basis of trade for as long as recorded history. I suggest you watch it again, we made no claims of what happened prior to recorded history. The claim about barter is that no society has ever based their economy on barter, not that barter doesn't exist.

[@Joshkie2]

0:57 This is a historical myth....

[@PEGSInstitute]

That's not false. The myth is that barter was the dominant transaction form prior to currency. All evidence we have says that's not true. Perhaps there was a time prior to that where things were different, but without evidence there's no way to prove one way or the other.

[@L7Fx]

how does minimum wage relate to this?

[@PEGSInstitute]

In what way? That's a limit of labour value, not related to the source of currency and government funding.

[@sp4m64]

I was wondering where the debt comes into play when different states owe each other. Any insight on that? Great video btw. The visuals helped.

[@PEGSInstitute]

Are you referring to nation states i.e. countries or sub-national government regions?

[@sp4m64]

@@PEGSInstitute nation states

[@PEGSInstitute]

Central banks of nations hold accounts with each other. It depends how the debt is owed though. For instance Japan and China currently own over $2T of US Debt, which they have accumulated by purchasing government bonds from the US Federal Reserve. This is done to compensate for the trade deficit. These are paid off in the same manner as any other government bond. There's also cases of aid being given in the form of loans, which has a more damaging impact on the recipient country. But that's a much more complex story.

[@sp4m64]

@@PEGSInstitute oh I get that but I am wondering where MMT comes into play here. Where is the "outflow" of the debts held by the other nations to prevent inflation? (Aka taxes in the local example)

[@PEGSInstitute]

If I'm understanding your question correctly, MMT does not apply to debts owed in foreign currency. That is to say that they'd have to be paid in a traditional manner. If confidence in your national output is sufficient then this is fine, but if your production is reduced and your currency becomes devalued relative to the foreign currency then excessive debt spending can lead to inflation.

[@LovingPrinceTamayuki]

But government isn't providing resources or services for the assets it's taking from it's taxes, it's also not voluntary. Instead it is paying a different individual with money it takes in from you so it can provide security services for itself against you, which it then tells to go collect more of your money.

[@PEGSInstitute]

That's the political choice that governments make. This video is just dispelling the myth that governments prioritise their spending based on their limited financial resources. Their financial resources are not limited if they are the issuers of the currency in a floating exchange system. Where they spend that money is entirely a political decision that has nothing to do with taxes. If you think they're spending it in the wrong places then don't let them lie to you when they tell you they can't afford to spend it where you think they should.

[@LovingPrinceTamayuki]

@@PEGSInstitute the rest of it's true (all that about government only spending its money and raising its taxes purely based off of political reasons.) but that part about "not limited by it's resources" everyone is limited by the resources, just because they can steal other people's assets, borrow assets from other people (to which they'll have to pay back later) and print more assets (which devalues their asset on the basis of supply and demand) does not mean they are immune to limitations on resources. If they were limited purely to the functions of currency creation we would still occasionally see great depression like results where of no fault of their own the whole of society relied on a structure that creates a fixed exchange asset while Society is in a constant state of fluctuation. In their case one of the other issues supposedly has historically been that the Federal Reserve keeps too close a track on the actions of the treasury and tries to make their decisions based off of what the treasury is doing instead of minding their own business. But even if the Federal Reserve was the only function of government and they just printed money and had a monopoly thereof I believe it would still fall apart for any number of reasons. At this point a free exchange rate where government does not have a monopoly on currency creation would probably be a beneficial way to go.

[@PEGSInstitute]

You've got some interesting thoughts. Our video next week will tackle the inflation bit you mentioned. We're keeping it to short videos to just give the basics, but there's plenty more info out that that discusses the other parts you mentioned in more detail. As I said, we're not disclosing any political views with this information, just sharing the evidence.

[@LovingPrinceTamayuki]

@@PEGSInstitute fair enough, so long as all it pretty much just says they can print as much cash as they want they only have to worry about how the inflation devalues the currency with every new dollar printed, and how that's sure to upset more than just afew people. Particularly foreign countries that hold now worthless currency notes that traded with the other country, they were expecting to spend the trade deficit, but maybe war is a better option.

[@PEGSInstitute]

It's more complicated than that. Tune in next week and I'm sure it will all make sense.

[@chazdouglas3114]

It's still bartering there was no money

[@ThomasVWorm]

No. There is no proof for barter economies. And those, who tell us, we did have barter in order to explain money, also tell us why we did not have barter: too complicated. Because this is how they explain money: barter is too complicated therefore we have money.

[@pnc1358]

@@ThomasVWorm bartering is a myth or not but to claim that normal people can never ever agree among ourselves to appoint anything as "money" that can be accepted between everyone of us and we only have to wait for government to issue it and call it money for us is a huge huge claim We even can falsify that claim easily nowadays by observing gamers in some online game, for example Diablo. They can mutually nominate some items to trade with each other as money in game without any authority doing that for them, online or offline. Underestimate people and overestimate government, maybe? Moreover, no matter which role taxes are really playing, "Soon, the cows will have wings"

[@PEGSInstitute]

@pnc1358 and what happens when the Diablo players try to trade game items for goods and services outside of the game?

[@pnc1358]

@@PEGSInstitute You got my point a bit wrong. It's to prove people can agree on mutual money by ourselves if needed, without any government. I believe MMT is quite underestimate normal people and societies and a bit overestimate government. It seems like without government, there will be no money and people will stop trading at all which i think it's too big to claim that

[@PEGSInstitute]

Well it's a good thing no one is claiming that then. I'd suggest a good starting point to learning more about the history of money and exchange would be Debt: The First 5000 Years by David Graeber. If you want the short version, watch the video you're replying to. I assure you, MMT economists are not ignorant of the history of money and exchange. In fact the "modern" in MMT specifically references a Keynes quote citing how we live in an age of money that has existing for thousands of years. It doesn't mean modern like something from the last decade, it means modern like not from prehistory. It is in fact the case that people use forms of exchange not sanctioned or endorsed by the state, but what we see from the historical record is that systems of money generally are born out of government enforcement, and even where extra-governmental exchange systems exist, they are required to be valued in the government currency at the time that the government comes to collect their taxes. We see this over, and over again in vastly different cultures across millennia.

[@martebest]

Government not create money. Government borrow money from banks. Yes, taxes destroy money. But money is issued by commercial banks every time when they make a loans. And here opposite process happen, money is destroyed when loan is repaid. So the reason why money from tax is destroyed is because this money is used to repay debt by government. More debt means more money, less debt means less money.

[@PEGSInstitute]

That doesn't make sense. If you understand that banks make loans, and that the money is deleted when those loans are repaid, then if the government is a money borrower that would mean that citizens paying taxes to the government can not balance the ledger and expunge the debt. The debt is only cleared when the borrower repays the lender. What you are saying about private banks is true, so then why haven't you applied that same logic to what the government is doing? You've decided that governments borrow, and then concocted this perversion of private credit operations to try to explain that, rather than looking at what actually happens and basing your analysis on actual government monetary operations.

[@martebest]

​@@PEGSInstitute This make sense. I assure You. Government may have money from 3 options: 1) Credit 2) Taxes 3) Bonds. Government do not issue own money. This was only in plans in USA when Lincoln and Kennedy were presidents. Credit create money, but taxes and bonds not. When government has credit then money from taxes is used to repay the debt and is deleted as is always is deleted when somebody repay the debt in form of installments.

[@pnc1358]

You pay tax in US Dollars... where did that US Dollars banknotes come from from the first place? If government does not create US Dollar, who does? Can commercial banks print any banknote legally? Government is the highest ranking in sovereign currency food chain.. if other commercial banks could create money at will like you said, there is no need to have any "bailout". No one can bailout sovereign government that can create their own currency. Actually it doesn't need anyone anyway.

[@martebest]

​@@pnc1358The Fed creates money, not the US government. The Fed holds cash and reserves, including digital reserves. Commercial banks also create money (digital version - just numbers on accounts) as debt when they make a loan. You have to pay it off and once it's paid off it's gone. In many countries government cannot take a loan from central banks. But they can get a loan from commercial banks. Follow Positive Money. Check Bank Of England base of knowledge.

[@martebest]

@@pnc1358 The Fed creates money, not the US government. The Fed holds cash and reserves, including digital reserves. Commercial banks also create money (digital version - just numbers on accounts) as debt when they make a loan. You have to pay it off and once it's paid off it's gone. In many countries government cannot take a loan from central banks. But they can get a loan from commercial banks. Check Bank Of England base of knowledge. Follow P o s i t i v e M o n e y.

[@patrickranney610]

so many things wrong here.

[@PEGSInstitute]

Any examples?

[@patrickranney610]

1. Monarchies not government. 2. gold and silver are money. 3. government currency is a debt note. 4. money is created by fraction banking. 5. inflation is from the devaluing of the currency by over creation.

[@PEGSInstitute]

You might want to do some reading

[@patrickranney610]

@@PEGSInstitute great rebuttal

[@SensFan2002]

@@patrickranney610 He sounds like a socialist. He wants big government. Bigger government(s) will create bigger problems.

[@bruhdashno]

I hate money, money blocks our freedom ,Who is on my side? reply me if you are same as me.

[@AegonBlackfyre-r3w]

If you gate money you don't understand what money is

[@bruhdashno]

@@AegonBlackfyre-r3w gate money?

[@bnwug]

MMT in a nutshell