Modern Monetary Theory
kumbayah, market, kumbayah
Quick Plugs
I have an old story out under a new title in the latest issue of Illustrated Worlds. You could find the text immediately below, but not the brand-new full-page b&w artwork by Michal Bedkowski.
Tonight is game night at Gate City Growlers. Let me know if you want to try out anything specific, or bring your own favorite.
And coming up this weekend is the latest edition of ConGregate (blessed be the 11th of its name). I will be there as a science guest.
Summer 2025: Forget the Money
In response to our current president’s ‘Big Beautiful [Budget] Bill’ being signed into law on July 4th (way to abdicate your financial responsibilities there, Congress!), I spent the weekend educating myself on Modern Monetary Theory.
You’ll see below in my IGMS column that I have for a long time been in the ‘money is not real’ camp. During the documentary above economist Stephanie Kelton says that making things is about real-world resources — things like iron, oil, uranium. The labor of humans is a real-world resource, as is computing power, composed of:
silicon (cheap)
rare earth elements (less cheap)
the genius of trained engineers and clean rooms (damned expensive)
lots and lots of electricity
Money is not like any of these things. Money is created by the federal government — “spent into existence” is the phrase Kelton uses. The government is not borrowing from the people, because the people do not create money. What the people have is their labor, and any real resources that their labor has concentrated into their hands.1 What printing money does is give the bureaucrats leverage, a way of directing that labor to use those resources in specific ways that the people who hold them would not otherwise choose for themselves. Why force people into slave labor at the point of a gun when it’s so much easier and safer to buy their time with pieces of paper?2
As a biologist, this resonates with me. Energy from the sun is from our point of view essentially limitless, but the carbon and the water and the minerals we use to capture that energy are not. What’s worse, those resources are patchy. There’s a lot of water on the planet, but it’s mostly in the oceans instead of in the deserts where the light is. The oceans are so deep that light can’t penetrate to the bottom where the minerals are. Some resource is always limiting. Which one is limiting is different in every environment, and it changes season to season, but in the natural world that resource is never money, which is something we humans just made up for accounting purposes. Competition is always strongest for that one limited resource, whatever it is.
As an in-between case, a linking example, let me detour for a moment into another slightly older documentary.
Silver is a real resource that can be dug up out of the ground and made into beautiful art objects3. But it was not money until a Chinese emperor during the Ming Dynasty made a law that all taxes to him had to be paid in silver, replacing the complicated “we’ll take a portion of whatever you’ve got” system. It was that change in the law that created the scarcity and drove up the price of a pretty but not otherwise terribly useful soft metal. This one legal change in another country was what drove the Spanish to colonize the new world, because silver was literally the only thing they could offer the Chinese for their technologically advanced pottery and textiles. Yes, the Spanish started minting their own coins out of silver as well, but that came later.
I have a lot more to learn about this.
Honestly I haven’t even finished watching the documentary yet. But for now, enjoy my earliest attempt to make sense of this whole economy thing in writing.
September 2015
Kumbayah, Market, Kumbayah
Back in the summer, a Governor's School student of mine asked me about economics in SF. I wish I had known about this list of classics of dismal SF on io9 at that moment. It's a good starting point. Not on that list - and topical, given the recent runs on the Chinese stock market - is Walter Jon Williams's This is Not a Game, which opens (opens!) with a crash of the Indonesian economy.
A theme in that book, and one that runs through much of economic SF, is the idea that money is not real. Many authors treat this as some grand delusion, like a Faerie glamour affecting an entire civilization. I certainly won't deny that there are religious aspects to economics. Forget the Bull and the Bear; forget Lady Fortune; I hear people routinely talk about The Market as though it were a single, sentient thing, making decisions for us, controlling our destinies in ways that are sometimes cruel, but comforting in their predictability. If belief in that thing fails, if everyone stops singing Kumbayah, there's a Lovecraft moment of cosmic horror where this realization (money . . . is not real!) means that nothing makes sense any more, and then the whole society goes insane with fear and collapses into chaos. It's mysterious, and scary.
Or maybe it's not. Peter Turchin studies the growth and collapse of historical empires through large-scale computer modeling. He wants to turn history from a humanities subject, where the focus is on argument and storytelling, into a predictive science that he calls "Cliodynamics," after the Muse of history. His approach also strikes me as a very cool way to play with fictional societies as well, to generate narrative surprises in a logical way. So how does he do it?
He starts with . . . wait for it . . . biology. It turns out that humans are an unusually cooperative species, but mostly in small groups who know one another personally or by reputation (one or two degrees of separation). Our brains, unaided, seem to be capable of tracking relationships with an average of maybe 150 people. This is not because we are stupid. A relationship with another sentient being contains a large number of variables. Constantly updating those variables and negotiating personal cooperation, moment by moment, consumes a lot of time and energy. I have recent personal experience of the difficulties involved. At the end of July, my own family of three went on a driving tour of the American West. There were dozens of tasks, large and small, to be negotiated every day - putting up the tent, taking down the tent, packing the roof bag, choosing what attractions to visit and how long to stay, where to eat, what to eat, when to pee. It was a tiny window into the mind of a hunter-gatherer. Maintaining cooperation is incredibly important, and it's hard.
One way to speed up those negotiations is to collapse those many variables into a single proxy variable, and track that instead. At the personal level, amongst family and friends, we would call that variable trust. Rather than counting up all the times we each got our own way, demanding a tit for every single tat, we can relax and trust one another to be generous, to err on the side of cooperation rather than selfishness. Mathematically, this is like averaging our relationships over time, smoothing away the jagged noise of momentary frustrations, lubricating the gears of the family machine. At the level of a larger group of people who are all acquainted by reputation, we might call a similar variable loyalty. At the level of groups of strangers who need to cooperate, but who have incentives to cheat one another, we might call it patriotism. Turchin uses the Arabic word aasabiyah. They all mean the same thing: a general index of the balance between cooperation and competition. This abstractness means that it computes faster, but it also feels sloppy to those of a quantitative mindset. The mystery starts to creep back in.
Another approach to fostering trust between strangers has been to make the accounting not less detailed but more detailed, more concrete, to publicize promises by writing them down where anyone can see them. Money is most fundamentally a debt, a favor, a promise between individuals or groups, embodied as numbers and in some cases as countable physical objects, for the simple reason that they are less slippery than words. For humans at least, the trade of physical objects that have actual functions is usually less important than the social contracts that they represent and reinforce. This might not be true for other species, and those differences could make for some good stories.
Early in the history of capitalism on our planet, each little economy produced its own coins, in competition with all other economies. The way of relating these coins to one another was their scientifically measurable gold or silver content. This was an attempt to make money objective, as a way of holding people to their promises. It also led to many attempts to secretly manipulate the content of coins, thereby allowing one party to cheat on its promises. See the anime series Spice & Wolf for deliciously devious and detailed plots of this type, or the Benjamin Weaver novels by David Liss.
These days we've moved away from objectively measuring physical quantities in relation to the economy, but a perfect example is all around us. An ecosystem is in fact an objective energy economy. The sun provides the energy, and photosynthesis fixes it into sugars, which are the currency of life on Earth. Plants trade these sugars to the fungi that live on their roots, in exchange for minerals that the fungi extract from rocks and soil. Parasites are the criminals who steal these sugars from their hosts (I didn't say it was fair; I said it was objectively measurable). There's a more or less constant exchange rate. One glucose molecule yields up to 32 ATP molecules, which can be used to power most enzyme reactions, at a usual rate of one ATP per reaction.
We can easily extend this idea outside of biology. One mole of the sugar glucose releases 2880 kiloJoules of heat when burned. A particular solar panel array at the University of Vermont converts sunlight into 2520 kiloJoules of electricity per month. What if we based our planetary (and interplanetary) economies not on imaginary "credits" but on measurable units of energy? What kinds of ripple effects would that have on a society's aasabiyah? How would we value products differently if we knew exactly how much energy went into making each one? What issues would be resolved? What new ones would be created? Of course, it would be great to get the plus and minus signs right, too.
Human nature is clearly not going to change any time soon - we may always be obsessed with cooperation and betrayal - but how would the expressions of those traits change if the rules of the economy were different in some arbitrary way? As a quick example of what I mean, check out this free story from Escape Pod.
Cassie said, “There are banks in Coolidge Corner, just a few blocks from here.” She nodded out the window. Red maple leaves danced in the air above the sidewalk. “I could just hold this here, and you could change your money and come back.” Betsy Ross stared up from the fifty-coupon note, an American flag draped over her lap, her portrait engraved with red, blue, and black ink.
Margaret set her mouth in a determined line. “He’s probably wondering why I’m not home yet.” She set down a twenty-coupon note on top of the fifty. “Why do they have separate money for men and women?”
Next month we'll return to biochemistry, and bears.
Randall Hayes also organizes the Greensboro Science Cafe series and runs his own education company, Agnosia Media, LLC.
REFERENCES
https://en.wikipedia.org/wiki/Kumbaya
http://io9.com/essential-science-fiction-novels-for-understanding-the-504805236
http://www.walterjonwilliams.net/books-excerpts.html
The link to the excerpt of TINAG is broken [still, 10 years later!], but the one to the sequel Deep State works.
http://peterturchin.com/cliodynamics/
As an aside, see his essay on Dune
http://press.princeton.edu/titles/9474.html
The first chapter lays out their basic argument. It is free as a PDF. These same authors have written other academic books about game theory and economics.
http://neweconomicperspectives.org/2012/06/mmp-51-conclusion-the-nature-of-money.html
Unusual to start with the last chapter of a book, I know, but this is clear and concise. Scroll down to the Introduction: What is Money?
http://www.funimation.com/shows/spice-and-wolf/home
PG-13 warning: Holo spends quite a bit of time naked in the first few episodes. It's that soft-focus anime naked, not some crazy hentai thing, but still. Just so you know.
Not that I care, personally, but IGMS had a strict PG-13 editorial policy.
Some might not consider these SF, but what's historical fiction, if not alternate history?
In more recent years, Liss had done more genre stuff, including comics!
https://en.wikipedia.org/wiki/Cellular_respiration#Aerobic_respiration
http://www.uvm.edu/solar/?Page=about.html
dead link as of 2025
http://escapepod.org/2014/12/24/ep473-soft-currency/
http://www.facebook.com/greensborosciencecafe
We meet one Thursday a month to talk science.
Dead link as of 2021, when COVID killed the gathering. If you ever attended one, sign the guest book (how’s that for a call back?)
Ironically, level-grinding games like the one fictionally depicted in Shangri-La Frontier make this more clear, because the weapon or potion that you want has specific ingredients that have to be gathered by somebody.
Unless you just need to prove that your Empire is evil for ratings purposes.
https://www.salon.com/2022/11/09/andor-dark-side-labor-exploitation-office/
which coincidentally have inherently useful antibiotic properties. Many metals are used in small amounts in the active sites of enzymes, but silver is less common than things like copper, and unlike copper it is not considered essential.
Coincidentally, this post goes into "What Makes a Currency Good?"
https://unchartedterritories.tomaspueyo.com/p/how-silver-made-chinese-empires