David McWilliams is both an academic expert in monetary economics and has worked for the Irish central bank, so he understands the realities of creating money. His book, Money, has just been released in paperback, so The Mint caught up with him to learn more about his views on this controversial subject, including the future of the dollar under Trump. On this, he bravely made a prediction, which we will see if he comes to regret.
Summary
Key Takeaways
- Money is fundamentally a social technology that co-evolved with other human innovations like writing, law, and democracy
- Cryptocurrency and gold-standard thinking reflect misunderstandings about the true nature of money as a social construct
- The U.S. may face a fiscal/dollar crisis under the second Trump presidency due to mounting debt and erosion of trust
Topics
Origins and Nature of Money
- Money emerged as a social technology ~5,000 years ago to help manage complexity in growing societies
- It co-evolved with writing, law, mathematics, and organized religion as tools for social organization
- The idea of barter as the origin of money is a myth; debt and credit systems came first
- Money is both currency (less important) and finance (more important), with finance resting on interest rates
Cryptocurrency and Gold Standard Misconceptions
- Cryptocurrency reflects a commodity view of money, misunderstanding its nature as a social technology
- Like Esperanto for language, crypto is pushed by a small but vocal group but lacks mainstream adoption
- The gold standard similarly misunderstands money’s social basis – “you can’t eat gold” in a crisis
Modern Monetary Theory (MMT)
- MMT gained prominence during pandemic spending but has limitations
- It focuses too much on currency aspects of money vs. the crucial role of interest rates in finance
- There is more scope for government spending than often assumed, but markets still constrain via long-term rates
U.S. Dollar and Potential Crisis
- U.S. debt-to-GDP ratio nearing 100% with interest rates exceeding growth rate is concerning
- Trump administration’s fiscal policies and potential Federal Reserve interference eroding dollar trust
- A fiscal/dollar crisis may occur under the second Trump term, framing the subsequent administration’s priorities
Greetings again Henry. Your interview with David McWilliams was a great discussion. His different terms for finance money and currency money is important. As an accountant, I see money as numbers on a balance sheet, of which fiat currency is just a medium of exchange commodity on the asset side. The security for it being its acceptance for use, for the elimination of debt, by all individuals in an economy. The second medium of exchange in an economy is debt. It is created in the private sector by every transaction in the marketplace of an economy. The security for it being only that provided by the private sector individual or entity executing the transaction.
You might be interested in my latest paper titled “Conceptual Framework for an Alternative Monetary System” of which section1. Is “ Revised Understanding of Money and Mediums of Exchange”. I have submitted it to the Canadian House of Commons Finance Committee.
The link ishttps://docs.google.com/document/d/1-HBTbVKaS4Vn2ofjOmmBXTg-9UkNTpuu/edit
Thanks, Edd.