It Smells Like the Poop of a Thousand Rams
The title of this blog is dedicated to the funniest eight-year-old I've ever encountered. When I explained to him that I didn't like Qatari summers, he sighed and lamented, "In the summer morning, Qatar smells like the poop of a thousand rams..."
Who talks like that????
As colorful as that sentiment is, I could easily use it to describe the quack monteary theories I have investigated over the years. They smell like the poop of a thousand rams......
Hi, my name is David in Qatar and I'm a money printer! I call my money Qatards. The value of my Qatards is determined by the market. Here's how it works.
I go to the computer store. I tell the owner of the store, Bob, that I would like to buy a computer from him. Bob says no. He's never heard of me and doesn't consider a Qatard money. It has no backing.
I reply, "Oh sure it does. The backing is the computer, which I will pay 700 Qatards for. I will hold the computer in reserve as a liability. Then I will sell it to the community for 700 Qatards, which they will acquire in exchange with you - you have to spend this new money, right? - and the money will effectively be cancelled out. You will be able to sell your computer, pay your employees, and no new money was created."
So Bob went along with my plan. He was now the owner of 700 Qatards and I had a 700 Qatard liability (one computer.)
As long I promise Bob that I will sell his computer to remove the 700 Qatards from circulation, I am not a counterfeiter.
Is This For Real?
This is an actual theory proposed by Mike Sproul, Professor of Economics at Cal.
"The Fed is not a counterfeiter because it puts its name on the money it prints, recognizes that money as its liability, keeps assets against that money, and stands ready to use those assets to buy back the money it printed. A private person who does the same thing is not a counterfeiter, but if that private person printed “the Fed’s (not their own) money” then they would be a counterfeiter. They would not put their name on the money, would not recognize it as their liability, would not hold assets against that money, and would not use those assets to buy the money back." - Mike Sproul, Dec 2009
By Mike's logic, I am not a counterfeiter as long as I don't put the Fed's name on my notes. Of course, I complied and called them Qatards. =D According to Mike, I have merely increased the ability of people to engage in mutually beneficial exchange. I am some kind of hero. My guidance counselor was right after all!
The Big Question
I have merely increased the ability of people to engage in mutually beneficial exchange
Notice what I didn't say. Where's the word "voluntary" in that statement? It's missing, right? Was the transaction voluntary?
In my hypothetical scenario, Bob the Computer Store Owner did enter into a voluntary exchange. But what happens when Bob attempts to pay his employees with Qatards? Will they happily accept them in lieu of real money? What if Bob had refused to accept Qatards at all? How can I get every person in the community to accept Qatards, no matter how many I print?
That's the Big Question, the one that Mike Sproul and most modern macro theorists dance around. Government force is implied, nay, welcomed! If I can back my money with the force of a gun, driving all other monies out of existence, then I can pay Mike Sproul a handsome salary to convince you that I'm not a counterfeiter. (Just kidding, Mike. I'm sure you don't see it that way.)
You have to respect the sheer audacity of the economics profession to rubber stump theories that require violence in order to hold true.
This theory smells like the poop of a thousand rams.
David in Qatar