An Unsolicited Letter to Ms Pettior on regarding her “The Production of Money”

James Junghanns
Nov 5 · 7 min read

Dear Ms Pettifor,

Please forgive the heavy-handed approach of a handwritten, post-borne “letter to the publisher” style of yesteryear, but I figure that in this day and age of tweets and spam emails this has a higher chance of “getting through” to you (albeit, at the expense of a truly glacial pace). That, and perhaps that directing unsolicited screeds at authors is a way of killing time. Maybe more of the latter, honestly.

I am currently slogging my way through your “The Production of Money”, and despite basically agreeing with you wholeheartedly (as if you needed the vindication of a loner on the distal isle of Malta), I have ‘issues’ with the text and the somewhat muddled reasoning behind it. Please allow me to elaborate.

I’m currently only on page 66 of the paperback edition, so this may turn out to be misguided further on in the book, but given the slow pace of establishing communication (is indeed I shall be successful at all), I figure I might as well get this started from where I’m currently at.

Let’s ignore for the moment my personal opinion that Keynes’ General Theory of Employment, Interest, & Money contains no such general theory at all, and is actually best understood as a collection of brilliant ‘hacks’ for jump-starting a stalled economy such as that of his (and our) time. That, in my view, makes it all the more precious, but the fact that it doesn’t contain “what it says on the tin” and is more an exercise in pragmatism than doctrine needs to be acknowledged.

Moving along to the core of my contention, or rather reformulation, of what I’ve read so far, it seems to me that one could boil your argument down to two key points:

  1. That which is used without imposing an opportunity cost on others (including “money created out of thin air”) should be free or at the most very moderately priced; and
  2. That the cost of servicing this “opportunity-costless money created out of thin air that should be basically free” pushes the horizon of discretionary spending so far into the future as to have paralysed the whole sociopolitical system in the here and now.

Am I understanding your argument correctly?

On the first point, I came to the realisation quite coincidentally today as I checked out late from a hotel in Nuremberg (Germany), more or less contemporaneously with reading your fourth chapter. I requested a late check-out, and that was deemed ‘OK’ by the staff because the receptionist consulted with her colleague and found that no urgent incoming guests were expected; then, having basically stated (in economic terms) that the hotel’s opportunity cost was zero, they had another round of consultation in German, the general import of which I infer was this (since I have only a very minimal grasp of that language): “he’s staying longer, so he’s using more time, so we have to charge him more for that time he’s here, because he’s having more time than he has already paid for” and came up, apparently arbitrarily, with an additional fee of 20€ for the extra three hours I was requesting.

As a human habituated to living in the real world of the early 21st century, this was utterly unremarkable and I accepted the offer, but as an economist, perhaps edged on by your writing, this struck me as deeply bizarre: I was being charged more to use more of something that didn’t impact anybody else, even though the marginal cost thereof was zero (since they wouldn’t be sustaining additional costs such as remaking the room once more & cetera). I basically agreed to give the hotel money in exchange for nothing that cost it anything additional, boosting it’s profit.

Whether “electronic money created out of thin air” actually does have zero opportunity cost, zero marginal cost, or even zero marginal opportunity cost, is something that needs to be thought about more carefully. After all, you do list a huge list of other uses it could be put to, and that is very much the core principle of opportunity cost: doing something with it precludes doing something else. What would happen if we created enough money to do both: bail out the banks and fund our welfare state? There’d be (for the U.S. example you cite by Bernie Sanders) not 16 more trillion but 32 more trillion dollars in the U.S. economy. Inflation has been notably flat despite the creation of $16 trillion… but that might be because they didn’t actually enter into the actual market of goods & services, whereas if they were funnelled into welfare spending, that wouldn’t be the case. To be perfectly honest, I expect that if they were funnelled into such markets, they would cause a great deal of inflation, and that would be a good thing, at least for those with negligible savings and/or not on fixed incomes (such as pensioners, but in the case of the latter I suppose it you’d expect that the extra funds would go in part towards raising their stipend). Would workers’ wages rise to match or exceed the rise in the cost of living? I’m no expert in such matters but with all the current slack (un- and under-employment) in the labour market today there’d definitely be a need for legislative intervention so as to tighten that market up.

Maybe we should also look at it from the opposite point of view: given that there are these opportunity costs, and the decision was taken to go ahead anyway, maybe the decision-makers evaluated the situation rationally and found that incurring those costs was the “lesser of the two evils”, at least for them (Bruce Bueno de Mesquita et al., The Logic of Political Survival, MIT Press 2003). Had they not intervened, the financial system’s ability to inter-operate would have basically collapsed, and one can look to to the Cypriot crisis of 2012 as an example of what happens to an economy when the financial system that undergirds it loses its shit: difficulty importing goods & services, paralysed markets and fire sales where cash is king, the emergence of barter economies, and reliance on familial and local ties. If, as Graeber counterintuitively but probably accurately contends in his Debt: The First 5000 Years (Melville House Publishing, 2011) money first arose as a manner of dealing with strangers devoid of “social credit” and as a means of making populations beholden to the State by the need to obtain inherently worthless tokens of exchange from soldiers with which to pay their taxes, one can guess that the result of a financial meltdown would be a balkanisation of a State into smaller communities and the loss of the government’s chief source of revenue as transactions become ‘moneyless’ and thus exempt from taxation (or at least any ability for the State to track it’s dues, and taxpayers’ inability to pay what is owed due to their illiquidity). If that’s the extreme scenario against which politicians weighed the risks between the breakdown of their pride & joy and chief source of employment and loads of misery imposed upon citizens, and merely a double dose of misery imposed on citizens and the (nominal) integrity of State being preserved, is it unexpected that they would choose the former course of action? After all, other people’s misery is the very epitome of an externality. Does that make it the ‘wrong’ decision to have taken? This comes down to an awkward issue: ‘rational’ decision-makers maximise their own utility. Those who were subjected to the double dose of misery might’ve sought to minimise it in order to lessen their ordeal, but their elected representatives might well not.

The second point kind of flows from the first: if the money weren’t being paid for in interest, drawn from the actual monetary income of the State (inarguably taxation), it could be spent in a counter-cyclical manner, increasing inflation (which I contend is still tenuously positive in real terms), generating a fiscal multiplier, and paying down the debt, which has the positive effect of reducing interest payable in yields to bond-holders but also has the the unpleasant side-effect of reducing money in circulation.

Having served as a Project Manager on a number of various teams, and finding how difficult it is to coördinate four or five people in tasks not much more complicated than baking a cake, let alone a global cabal supposedly engaged in social engineering on a global scale, I think this is less likely a conspiracy than an accidental rut we’ve collectively got ourselves stuck in, and that since it behooves the powers-that-be there’s no general impetus to get our nations out of.

I herald from a country (Italy) that has been particularly severely damaged by this whole damned process of never-ending recession, now entering what is probably in practical terms it’s twentieth great year, and I have personally (and ultimately ineffectively) battled the effects of the race-to-the-bottom effect it has created in the economy, as the family firm founded by my grandfather and (somewhat misguidedly, but I digress) managed by my father has for the longest time been in the process of imploding like a badly turned-out soufflé, and therefore I “picked up my sticks and left”, only to wash up on the shores of this tiny sandblasted rock in the Mediterranean where one can basically smell the real estate bubble on the morning breeze: the smell of recently poured concrete and freshly applied plaster that wafts into my nostrils when I leave my house every morning, the over-abundance of cranes on the skyline and cement lorries in the morning traffic, all fuelled by an influx of companies and foreign workers eager to partake of the low fiscal onus whilst enjoying full access to E.U. markets.

I look forward to hearing from you, if you so please.

With chillingly earnest sincerity,

James Junghanns, an effective Mr Nobody

P.S. It may amuse you to learn that I picked up my copy of your book from my ‘accursed’ alma mater’s bookstore, at L.S.E.

James Junghanns

Written by

Macro economist, applied mathematician, social engineer, lapsed hacker, occasional programmer, unwitting businessperson. Mixed English/Italian/German descent.

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