Money = Debt, Debt = Money? Nonsense!
Modern day Keynesians (and Zeitgeist advocates) operate under this very absurd assumption; some proclaim it outright, but others say it indirectly. An direct statement of the above proposition that Money = Debt, and vice versa, goes like this.
Quote from Mr. Keynesian: “Money by its very nature is a claim on society; it is a token of a debt that someone in society owes. Even according to such crazies as Mises and Rothbard, money is proof that you have served your fellow man. If you performed Service A or sold him Commodity B, he pays you in money. Money isn’t good for anything else other than facilitating trade, and since it isn’t good for anything else, it is by its very nature a token of debt; an I.O.U., as it were. As one such insane bastard, Walter Williams, put it; when a man goes to a store to buy an item (let’s say a pound of beef for the sake of argument), the employee of the store asks the costumer, “Have you served your fellow man to the tune of $5” The customer replies back, “Yes, I have served my fellow man to the tune of $5, and here is the proof”, and thus the customer hands the cashier $5 and he receives the commodity. This entire exchange is, ultimately, nothing more than buying/selling debt in exchange for some tangible commodity; the store bought $5 worth of debt in exchange for a pound of beef, and the customer sold $5 worth of debt in exchange for a pound of beef. This is the fundamental reason why debts don’t really matter; money is, by its very nature, debt. Crack-pot Austrians love to talk about ‘real debt’ this, ‘real GDP’ that, but in reality the ‘real debt’ is completely incalculable. If we seriously liquidated all of the ‘toxic debt’ (an oxymoron, since the very foundation of exchange and thus society is debt), we would end up going back to primitive barter!”
This is a direct statement (and exposition) of the proposition that Money = Debt, and vice versa, and while this is an extreme example to be sure, you will find that the same underlying assumptions Mr. Keynesian makes in his above argument are built into virtually every Keynesian exposition of monetary theory.
The first big mistake that he makes is that he totally neglects to talk about how money came to be used. Money is a commodity, just like any other commodity; the only difference is that it is so widely demanded, it is the medium of exchange. There is nothing arcane or mystic about money; it is just that simple. Because money is nothing more than a widely demanded commodity, it can hardly be said to be a “claim on society.” If it were true that money is a claim on society, what does that say for the goods and services that exchange for money? It would be far better (though still very incorrect) to say that the goods and services that exchange for money are themselves claims on society, but a claim on society is by necessity an entitlement. If you are entitled to something, it is yours by law, but no one is entitled to any sort of good or service on the mere basis that he has money. A person with money must first find and convince various individuals to part with their goods and services in exchange for a given amount of money. If they indeed part with these goods and services in exchange for the money, then assuming no sort of coercion took place, they did so because they valued the money they received more than the goods and services they parted with, and not because the person with money was somehow entitled to those goods and services.
The second big mistake that Mr. Keynesian makes is that he makes the assumption that money isn’t good for anything other than facilitating exchange. This mistake rests on a problem that we mentioned earlier; namely, the fact that Mr. Keynesian does not talk about how money came to be used in society to begin with. As I have pointed out before, money is nothing more than a widely demanded commodity, but why is it widely demanded? It is widely demanded because of its prior reputation. Money starts out as merely another commodity in a barter economy, but over time, individuals begin to favor certain goods over others. Why? Because the demand for those goods is higher than other goods, and thus it is easier to trade them off for the various goods and services that an individual in society may want. For example, it is easier to trade gold for lessons in economics than it is to trade dental services for musical lessons.
But, why is money so demanded? How did money (gold for instance) start from being just another commodity in a barter economy and then become a massive medium of exchange? Individual preference; people, for whatever reason, preferred gold to the other commodities available, thus the demand was higher, thus gold became a medium of exchange. You can come up with your own ideas as to the source of the original demand for gold. Like I said; money is not overly complex. It is not some arcane device that’s so intricate that the world’s smartest Ph.Ds and Nobel Laureates have a hard time understanding it.
So why do the world’s smartest Ph.Ds and Nobel Laureates have such a hard time understanding it? Because they make the above mistakes, and they make them in spades.