Keynes and Modern Monetary Theory

27 Sep, 2012 at 10:20 | Posted in Economics | 2 Comments

[Bendixen says the] old ‘metallist’ view of money is superstitious, and Dr. Bendixen trounces it with the vigour of a convert. Money is the creation of the State; it is not true to say that gold is international currency, for international contracts are never made in terms of gold, but always in terms of some national monetary unit; there is no essential or important distinction between notes and metallic money; money is the measure of value, but to regard it as having value itself is a relic of the view that the value of money is regulated by the value of the substance of which it is made, and is like confusing a theatre ticket with the performance. With the exception of the last, the only true interpretation of which is purely dialectical, these ideas are undoubtedly of the right complexion. It is probably true that the old ‘metallist’ view and the theories of regulation of note issue based on it do greatly stand in the way of currency reform, whether we are thinking of economy and elasticity or of a change in the standard; and a gospel which can be made the basis of a crusade on these lines is likely to be very useful to the world, whatever its crudities or terminology.

J. M. Keynes, “Theorie des Geldes und der Umlaufsmittel. by Ludwig von Mises; Geld und Kapital. by Friedrich Bendixen” (review), Economic Journal, 1914

The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time – when, that is to say it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of Money has been reached that Knapp’s Chartalism – the doctrine that money is peculiarly a creation of the State – is fully realized. . . . To-day all civilized money is, beyond the possibility of dispute, Chartalist.

Thus the long age of Commodity Money has at last passed finally away before the age of Representative Money. Gold has ceased to be a coin, a hoard, a tangible claim to wealth, of which the value cannot slip away so long as the hand of the individual clutches the material stuff. It has become a much more abstract thing–just a standard of value; and it only keeps this nominal status by being handed round from time to time in quite small quantities amongst a group of Central Banks, on the occasions when one of them has been inflating or deflating its managed representative money in a different degree from what is appropriate to the behaviour of its neighbours. Even the handing round is becoming a little old-fashioned, being the occasion of unnecessary travelling expenses, and the most modern way, called “ear-marking,” is to change the ownership without shifting the location. It is not a far step from this to the beginning of arrangements between Central Banks by which, without ever formally renouncing the rule of gold, the quantity of metal actually buried in their vaults may come to stand, by a modern alchemy, for what they please, and its value for what they choose. Thus gold, originally stationed in heaven with his consort silver, as Sun and Moon, having first doffed his sacred attributes and come to earth as an autocrat, may next descend to the sober status of a constitutional king with a cabinet of Banks; and it may never be necessary to proclaim a Republic. But this is not yet–the evolution may be quite otherwise. The friends of gold will have to be extremely wise and moderate if they are to avoid a Revolution.

J. M. Keynes, A Treatise on Money, 1930


  1. This essay was first published in Political Quarterly in 1943

    Political Aspects of Full Employment

    Michal Kalecki anticipated ongoing class warfare between highly dissociated social classes.

    Trivially obvious, and expected. Especially from a European. Yet, 70 years on, we still have to invent what goes beyond our extremely superficial, current habits. We’re better than this, and it is equally obvious that there is a better way. There are many better ways. We need to get on with exploring them and selecting from them. Otherwise, we won’t be selected to continue on the world’s stage.

    ps: I can’t easily tell you how ridiculous “full employment” doubts sound to a biologist. If you have any familiarity whatsoever with all the model species we’ve studied – or the organized systems we’ve modeled – you couldn’t have any doubt whether any ant in any colony remains unemployed, or whether any cell within your own body is unemployed. Why should any citizen in a nation-state be any different? This topic is one that cannot even be appreciated from the perspective of only one of our many professions. To drive acceptable group outcomes, we need policy formation to rely on feedback from all professions. It’s obscenely incompetent even to restrict the unemployment debated to the economics field alone.

    The unemployed debate is one of stupidity, ignorance & lack of imagination, nothing more. It’s not even an interesting topic to those not suffering from those limitations. It’s a very bad sign that we’re even having this discussion this often.

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