Last week, Senate Minority Leader Mitch McConnell blinked, allowing Congressional Democrats to vote to raise the debt ceiling enough to delay the looming global financial crisis until early December, when the US government will simultaneously run out of cash for ongoing operations and borrowing power. to pay past commitments. If that sounds overwhelming with slight praise, it is. Having fabricated a completely unnecessary crisis, McConnell and all the other Republicans in Congress deserve no gratitude for allowing too temporary a sigh of relief.
Nonetheless, the reprieve of less than two months provides an opportunity to reflect on some of the measures that have been proposed to deal with the upcoming debt ceiling deadlock. So, for example, written in the New York Times Last week, Peter Coy examined the implications of one of the more exotic options that has been periodically thrown out over the decade since Congressional Republicans began using the threat of default to extort President Obama first and now President Biden – the suggestion that the Treasury could ask the Mint to create very high value platinum coins, which would be credited to the federal government and thus used to pay federal bonds.
As Professor Neil Buchanan explained in his column here on Verdict The platinum coin gadget last week was a terrible idea, mainly because there are much simpler ways the president could fix a lack of government borrowing power. Moreover, as I had a fight in 2013, it’s not even clear that the platinum coin bet is legal the way its supporters claim. Meanwhile, Professor Buchanan and I have pointed out in our joint and individual work that the prospect of the government circumventing a limit on its borrowing power by minting a coin worth around one trillion dollars is so cartoonish. that it risks undermining popular confidence in money.
Mr. Coy explored our critique of the platinum coin proposal in his Times trial. In the remainder of this column, I will add to the response that Professor Buchanan and I offered to one of our critics cited in the Coy column. This will lead me to a deep dive into the nature of money and the law.
What is money?
Suppose you are a potato farmer living in a society with a barter economy. You want to get a new wheelbarrow from your neighbor the cooper. Unfortunately the cooper has all the potatoes he wants, so you exchange some of your potatoes for grapes, which you provide to a winemaker in exchange for wine, which you give to a tailor for a shirt, which you ultimately exchange with the cooper for the wheelbarrow. Now think how much easier life would be with an economical universal medium of exchange. You could go to the market and sell twenty pounds of potatoes for a piece of paper with a picture of Alexander Hamilton on it. You could then use such pieces of paper to buy a wheelbarrow. Money facilitates trade.
But suppose one day people start to doubt the usefulness of money. Maybe they do it because inflation devalues it faster than they can spend it. Or perhaps there are so many realistic-looking fake banknotes in circulation that a substantial effort is now required to distinguish the true from the false. Or maybe everyone suddenly realizes that pieces of paper have no intrinsic value and start demanding a genuinely useful commodity, like potatoes. Money works like the momentum does in old Roadrunner cartoons. As long as Wile E. Coyote doesn’t look down and realize he’s past the edge of the cliff, he can keep moving forward. However, once enough people look down, so to speak, the money crumbles and we go back to bartering our potatoes.
Professor Buchanan and I argued that one of the risks of depositing very high value platinum coins into the treasury account is that it shows the average person that there is nothing more important than acceptance by all as legal tender. This realization, in turn, could erode confidence in the very idea that money has value, thereby undermining the psychological basis of the financial system and with it the real economy.
Is money a noble lie?
But wait! Quoting an article by Willamette Rohan Gray’s law professor, the Times The article emphasizes that the value of money is not simply a matter of whether everyone expects everyone to accept money. The law gives a dollar value because the law imposes taxes and allows people to pay their taxes in dollars. So money is backed by law, not just group psychology, right?
Not enough. As the Times The article goes on to say — citing both Professor Buchanan and myself — while Professor Gray is correct that the law gives dollars a certain reality, it is not enough to inspire confidence in money.
For example, Argentina has experienced hyperinflation on several occasions during the last quarter of the twentieth century. The country eventually stabilized its currency but recently experienced an annualized inflation rate of over fifty percent. All the while, the government has accepted tax payments in Argentine pesos, but in the rest of the economy, when inflation soars, many traders, banks, and individuals turn to more stable alternatives, especially the US dollar and even recently crypto-currencies. The government can create a certain demand for money, but in order for it to perform its primary function as a medium of exchange in the whole economy, people must have confidence in it.
So much for taxes as the basis of monetary stability. Professor Gray appeared to express a further objection to Buchanan / Dorf’s concern about the psychological social impact of high-value platinum coins. In a system with “electorally responsible politics,” he said, it is “extremely dangerous” not to trust the general public to handle the truth. As Professor Buchanan explained last week on my blog, we naturally read that Professor Gray accused us of elitism.
This is also how I understood Professor Gray’s position. So the Times history quoted me as asking whether the social psychological roots of money are disguised by some sort of noble lie – an assertion that our leaders know to be false but that they encourage in the masses to promote a social interest. I have noted that, like Professor Gray, I also believe that noble lies are in tension with democratic values, but that they may nonetheless be necessary in certain circumstances.
Can we manipulate the truth?
The undemocratic character of noble lies can be attributed to the most famous discussion of the subject, which appears in Plato’s Book III Republic. Drawing on the mythical origin stories of most civilizations, Socrates proposes that in the ideal political regime, rulers should educate the governed and the slaves that their place in the hierarchy of social status is ordered by the gods, for people of different classes are made of different subjects. . For Socrates and Plato, deception was noble because it promoted civil peace and the type of political order they favored. For modern readers, of course, deception is abhorrent.
Yet what if the belief in a misconception promotes the greater social good without unduly favoring the powerful? A false belief in the inherent value of dollars may be necessary to ensure their continued use and thus avoid the kind of catastrophe that would occur if people instead turned to hoarding the precious metal (which, by the way, did not. no intrinsic value as a medium of exchange) or insisted on bartering. A false (or at best unverifiable) belief in the punishment of sinners in the Hereafter can induce virtuous behavior in people with faulty conscience whose misdeeds are likely to escape detection by law enforcement. Indeed, the law itself can be seen as some kind of noble lie.
In saying that the law can be a lie, I do not mean to deny that acts in violation of the law, if detected, often lead to arrest, prosecution and punishment. Our very real prisons prove the contrary. Yet in democratic societies legitimate government authority does not rest solely on the state’s willingness to use force. Rather, we believe that, as the Declaration of Independence proclaims, “governments. . . derive[e] their just powers with the consent of the governed.
Do our laws have democratic legitimacy? The answer is not a simple yes or no. On the one hand, we have elections for federal, state and local officials who are at least somewhat sensitive to public opinion. On the other hand, our Constitution, as written and interpreted by the courts, gives disproportionate power to white rural voters and the rich and powerful. Does this make the legitimacy of the law a lie? And if so, should our government obscure the truth?
An appropriate subtle answer to these questions must balance competing risks. If the consequence of people realizing that our laws lack full democratic legitimacy would be lawlessness, then a little lying could help. Right now, however, the greatest danger is the other way around – that people will be too complacent because they believe our political system is more representative than it actually is. More and more, the idea that the United States has a representative government sounds like a lie, and a vile lie.