“The best way to destroy the capitalist system is to debauch the currency”

Can you guess who said that?

Something that I have focused on in my Classical Economic Theory and the Modern Economy, but which is an otherwise unknown consequence of the Keynesian Revolution, was the shift in emphasis from the real side of the economy to the monetary side. If one is to understand the operation of an economy it is essential firstly to look at the actual real level of activity and only then look at the monetary side that lies above it and largely outside of it. Every classical economist understood the point. Virtually no modern economist does, and certainly no one without a serious study of economics ever does, which really does mean that near enough no one at all any longer understands this even slightly. Which leads me to this: Pandemic moves Modern Monetary Theory from the fringes to actual US policy.

[Modern Monetary Theory (MMT)] has received increased publicity over the past three years as politicians realized there was not a plausible plan to raise the funds necessary to fund “Healthcare for All,” the “Green New Deal,” free college and other initiatives through taxes alone.

The core principle of MMT is that sovereign governments with sovereign currencies can “print” or “coin” money to support full employment or essentially any government program that would benefit society in the here and now. Critics have labeled it the “Magic Money Tree Theory.” Those detractors include Keynesian and Monetarist economists, who cite Hungary in the 1840′s, Brazil in the 80′s, Mexico in the 90′s as examples of where easy money policies led to hyperinflation.

Warren Mosler was one of the founders of MMT, and what is known as `Mosler’s law’ states: “No financial crisis is so deep that a sufficiently large increase in public spending cannot deal with it.” These words fundamentally represent the actions our policy makers have taken in response to the virus. This pandemic has moved MMT from the fringes to the dead center as the actual monetary policy of the United States.

These are people with PhDs in economics who will comprehensively ruin us, and on this let me quote Keynes with absolute approval:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth….

As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

It was Lenin who said it, but quoted by Keynes as a warning to us all. Are you that one in a million who sees the point? Well if you are, there are then the other 999,999 who do not, which includes every single political leader heading every single government across the Western world today, each one of whom is engaging “all the hidden forces of economic law on the side of destruction”.

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34 Responses to “The best way to destroy the capitalist system is to debauch the currency”

  1. Rex Anger

    Time to take up chook farming or smoking then. As my history recalls, Germans in country areas during the hyperinflation crisis has a real advantage in hard[boiled?] currency over thekr city-dwelling counterparts, and cigarettes had real value.

    Maybe distilling also?

  2. Keynes should have, but apparently did not, know that politicians would take one half of his theory, running deficits in deflationary times, and forget the rest about running surpluses in good times.

  3. 2dogs

    The lifting of the COVID restrictions will see inflation return to levels last seen in the 70’s and 80’s.

  4. MPH

    Stagflation inbound. Prices of things that no one other than a tiny minority care about will collapse, prices of essentials will go through the roof.

  5. egg_

    Stagflation inbound. Prices of things that no one other than a tiny minority care about will collapse, prices of essentials will go through the roof.

    A “two step” Economy?

  6. Mark M

    Brendan O’Neill:

    “Covid Britain feels like a one-party state.
    The despotic instinct runs riot.
    The role of the citizen in the Covid dystopia is to applaud the state, not question it.
    Every Thursday night, on your doorsteps or your balconies, you must clap for the benevolent state and its gracious health service.
    Big Brother loves you and you must love it back.
    We have seen police officers telling people to get out of their own front gardens, to stop walking in the Peak District, to get off park benches and return to their house arrest.
    Snitching is the only thriving business.
    By the end of April, British police forces had received 214,000 calls from Covid Britain’s willing army of spies.
    ‘Always the eyes watching you’, as Winston Smith put it.

  7. calli

    That O’Neill article is excellent.

    The media-government spats over the Covid crisis are the narcissism of small differences. The very shrillness of these discussions is an indicator that what we have here are groups devoted to the same cause – locking down the country – but who differ over how successfully the cause has been implemented. Hell hath no fury like fanatics bickering over details.

    It’s the same in politics. Every clash and row takes place within the parameters of acceptable thought. Genuinely demurring voices are notable by their absence.

    The narcissism of small differences. Perfect.

  8. The NHS is the Ministry of Love.

    If you don’t give two minutes of love, you deserve two minutes of hate.

  9. MMT is so crazy that Stalin never tried it and the Nazis did it in secret.

    It is just galling, unbelievable tripe. You get to see who these people really are.

    It unmasks these adults as the insane homonal idiot teenagers they really are.

    If your seignorage goes too far, your currency and therefore your banking system collapses.

    There goes the credit market and payment system.

    Now you’re a 3rd world country.

    Well done, you insane, irresponsible dickheads.

  10. sfw

    If we are to get MMT how do you get to be the ones who get their hands on the money first? In any inflation those who get it early and buy assets do well but I don’t know how to be one of them.

    Any suggestions?

  11. bollux

    To SFW,
    Become a politician or a Bureaucrat. State Federal or Local. Doesn’t matter. Is there anyone on Catallaxy that still thinks the government is on your side and operating in your best interest?

  12. NoFixedAddress

    So Australia can stop all overseas aid right NOW and any country that says they need aid are just not having a proper go.

    And if your country can’t buy the presses, the ink and the paper to print your own currency then you do what any sensible government such as Venezuela is doing and substitute cocaine currency instead of worthless paper currency.

    Does anyone know if we are still giving aid to China as we were some years ago?

  13. Chester Draws

    every single political leader heading every single government across the Western world today

    Don’t be silly. Not every government, by a long shot.

    NZ has borrowed to splurge, but 1) years of surpluses have given us room (our debt after the splurge will be less than Australia’s before it, by some distance), and 2) the intention is to return to surplus as soon as possible and pay it back (NZ Labour governments are far more sensible in this regard than most “conservative” ones).

    I don’t know about other countries, but I doubt the Swiss are stupid enough to bankrupt themselves. The Norwegians have the cash anyway. The Swedes haven’t shut down their economy, so they won’t have the same funding issue.

    But many countries are in big trouble, I will give you that.

  14. sfw

    bollux, the pols do alright, they just create the conditions, but the ones who do big are those who get the money first. Who are these people?

  15. FIRE, fixed assets and property.

    Bear in mind our macroeconomic conditions and that some information is already priced in.

    Keep an eye on fixed asset prices; also that we may face an inflationary environment, negative nominal rates and somewhat stable cash returns on fixed *capital*, whilst asset prices might fall given unemployment.

    I loathe to give financial advice, we live in a highly litigious society and even unpaid opinion can be considered *financial advice*.

  16. “Hard assets and fixed assets”

    Please don’t sue.

  17. NoFixedAddress

    #3462639, posted on May 24, 2020 at 10:22 am
    but the ones who do big are those who get the money first. Who are these people?

    Off the top of my head I can think of,
    The “Environment” system,
    The “Defense Supply” system,
    The “Education” system,
    The “Legal and Accounting” system,
    The “Energy generation and supply” system,
    The “Health” system,
    The “Transportation” system,
    The “Bureaucracy Business”,
    The “Political” system!

    Just look to the American system for guidance.

    Most people think when they vote for a federal politician -a House or Senate representative- they are voting for a person who will go to Washington DC and write or enact legislation. This is the old-fashioned “schoolhouse rock” perspective based on decades past. There is not a single person in congress writing legislation or laws.

    In modern politics not a single member of the House of Representatives or Senator writes a law, or puts pen to paper to write out a legislative construct. This simply doesn’t happen.

    Outside groups, often called “special interest groups”, are entities that represent their interests in legislative constructs. These groups are often representing foreign governments, Wall Street multinational corporations, banks, financial groups or businesses; or smaller groups of people with a similar connection who come together and form a larger group under an umbrella of interest specific to their affiliation.

    Sometimes the groups are social interest groups; activists, climate groups, environmental interests etc. The social interest groups are usually non-profit constructs who depend on the expenditures of government to sustain their cause or need.

    The for-profit groups (mostly business) have a purpose in Washington DC to shape policy, legislation and laws favorable to their interests. They have fully staffed offices just like any business would – only their ‘business‘ is getting legislation for their unique interests.

    These groups are filled with highly-paid lawyers who represent the interests of the entity and actually write laws and legislation briefs.

    In the modern era this is actually the origination of the laws that we eventually see passed by congress. Within the walls of these buildings within Washington DC is where the ‘sausage’ is actually made.

    Again, no elected official is usually part of this law origination process.

    Almost all legislation created is not ‘high profile’, they are obscure changes to current laws, regulations or policies that no-one pays attention to. The passage of the general bills within legislation is not covered in media. Ninety-nine percent of legislative activity happens without anyone outside the system even paying any attention to it.

    Once the corporation or representative organizational entity has written the law they want to see passed – they hand it off to the lobbyists.

    The lobbyists are people who have deep contacts within the political bodies of the legislative branch, usually former House/Senate staff or former House/Senate politicians themselves.

    The lobbyist takes the written brief, the legislative construct, and it’s their job to go to congress and sell it.

    “Selling it” means finding politicians who will accept the brief, sponsor their bill and eventually get it to a vote and passage. The lobbyist does this by visiting the politician in their office, or, most currently familiar, by inviting the politician to an event they are hosting. The event is called a junket when it involves travel.


  18. nfw

    Of course the great irony with Leninism et al is the Soviet Union fell because they debauched society.

  19. Professor Fred Lenin

    Will the cashless society have any effect on financial irresponsibility ? Or will the career polliemaggots continue to spend like lefties ?,will the government credit card be blocked by the issuing bankers as it it over the limit? . Important questions ,dont you think ?

  20. max

    So, to buy a 10kg bar of gold or not ?

    If it’s stagflation that’s probably a no.

    If inflation, that’s a yes.

    And yes, I know, you can’t eat gold.

  21. Hello Rafe. Thank you for this very interesting econ lecture. I no longer read or write on this topic but here is something about Mr Keynes I had written 25 years ago that may interest you.


  22. duncanm

    Mark M
    #3462477, posted on May 24, 2020 at 6:01 am
    Brendan O’Neill

    The thing that really frightens me is how easy it all is.

    We’ve all read 1984, we all know of totalitarian states, and we all think ‘yes, but there’s no way that can happen here’.

    Then, the source of fear is presented (covid). All the arguments for lockdown sound reasonable at first. .. and here we are, as Brendan has outlined.

    Try to explain this precipice we’re on, and people look at you with blank expressions.

  23. duncanm

    Good time to borrow big on property?

  24. Professor Fred Lenin

    So the government was advised to borrow 130bn for the covid employment relief ,OOPS ! Sorry prime minister we only need 70bn ,little error there sorry. ABC headline ,libs have extra 60bn to spend !
    Where in the name of God do these [eopke live? Its not a fecking bonus! Its less debt if you dont use it ,thats how it works ,wonder what their personal finances are like?. Credit cards maxed all the time ?
    And I thought the Chinese Bat Disease was bring back reality ,stupid is endemic.

  25. Bad Samaritan

    hmmm. I’ve been looking at the recent US injection of $4 trillion into their economy…and the past thirty years of endless stimulus in Japan….and am not coming up with any consumer inflation at all (deflation mostly). also not seeing crashing currencies and soaring interest rates.

    Thus, this absurd gut-fear of hyper-inflation looks rather overblown.

    When we had the massive run on dunny paper and almost everything else, there “should’ve” been quite a bit of price gouging. As I drive into my local servo to full-tank at 87.9 cents minus 4 cents on my Woolies card, I was dwelling on this hyper-inflatio;. How different it is to every other hyper-inflation it is!


    I’m one of those fast-vanishing economists I guess: one that when theory doesn’t explain the facts I modify the theory, but not here at the Cat, eh?

    Always fighting the current war as if it were the last war is not a great strategy at all. Start actually thinking!

  26. John A

    max #3462704, posted on May 24, 2020, at 11:20 am

    So, to buy a 10kg bar of gold or not?

    If it’s stagflation that’s probably a no.

    If inflation, that’s a yes.

    And yes, I know, you can’t eat gold.

    Yes, but it will be just like the Million Pound Note and, if you play your cards right, could be just as helpful.

  27. Thus, this absurd gut-fear of hyper-inflation looks rather overblown.

    It is not absurd to worry about your currency collapsing. The consequences are generationally devastating.

    No one knows how to quantify how much the US could get away with before it went very pear shaped.

    The problem is path dependence.

    Can Japan ever pay back their debt? Forget about rates. They still owe the principal sum.

    Who knew at what level of money supply the German mark would collapse?

    Real prices consist of nominal prices and the price deflator.

    The US 2009 stimulus backfired so badly; it created deflation as it depressed output so badly, despite the banks being well capitalised at that point and bailed out.

    Consider that the real effect may be to depress output if money is considered non-neutral.

    Then there is the other problem. Path dependence through debt to a currency collapse.

    Debt begets QE which begets more debt.

    The reason why the USD won’t collapse quickly is because there are far worse currencies out there. Not because they are doing the right thing in an absolute sense.

    Eventually distort the capital structure so much that real wages fall; then the nominal price level becomes evident against the noticeable fall in production.

    The US has had a failed currency before. So has the 2nd most industrialised nation in the world and a resource rich precious metal exporter with an export earning agriculture industry. (Germany and Argentina).

    Petrol is a terrible example since we’ve had a totalitarian lockdown forcing oil prices down.

    Capital city property prices have doubled since 2009.

  28. gafa

    Time to take up chook farming

    Would need a gun to keep the “foxes” away.
    Maybe invest in a gun shop.
    Where are all those AKs buried, haha lol? No seriously, where are they?

  29. Professor Fred Lenin

    In a little town inthe Victorian Alps there was a guy called “the coughing fox ” , peoples vhool\ks would vanish taken by a fox with a smokers cough . True story .

  30. 2dogs

    the Soviet Union fell because they debauched society


    Here’s a more accurate version:

  31. Squirrel

    A particularly relevant post, not just because of the massive spending (and the disturbing atttitude that we have $60bn. going begging), but also because of the push now for negative interest rates – could the theft of savings and the effort and sacrifice on which they are based be any more blatant?

  32. Alan

    Rule #1: Know your enemy.
    “Lenin is said to have declared that the best way to destroy …”
    PART1: The Forgotten Nature of Socialism
    PART2: The Nature of Karl Marx

  33. Pyrmonter

    Minor point of pedantry – the quote from TECOTP has been used so widely that people have looked for the original in Lenin: it seems he didn’t say it:


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