The Controversy Surrounding Debt as Money
In recent times, the idea that debt can be considered as money has sparked considerable debate. This concept is often discussed within the context of Modern Monetary Theory (MMT) and has implications for our understanding of financial transactions and debt management. However, not everyone agrees on the validity of this notion.
Debt as an Asset and a Component of Money
On one hand, some argue that all debt is intrinsically linked to money and can serve as a valuable asset. For instance, government bonds issued by entities like the United States government are considered highly reliable and liquid, effectively making them a form of quasi-money. Similarly, bearer bonds from top-tier corporations can also be close to serving as money in certain contexts. Despite these instances, it is important to recognize that not all debt fits this description.
Money as a Form of Debt
The fundamental concept behind the idea that money is a form of debt is rooted in the idea of IOUs (promissory notes). Under the Gold Standard, for example, a piece of paper might have represented a promise to deliver a certain amount of gold on demand. Similarly, an IOU could represent an obligation to provide goods or services in the future. What matters most is the issuer's promise to provide something in the future, rather than the nature of that something (gold, grain, or even a unicorn, as humorously suggested).
Arguments Against Debt as Money
I do not concur with the notion that debt is equivalent to money. Debt, while fungible and valuable in financial transactions, inherently carries risks that money does not. This distinction is crucial when considering whether debt should be treated as money. A key point of contention revolves around the ability to sell a promissory note or mortgage, which can be seen as a money-like exchange. However, these instruments carry with them the risk that the debt may not be repaid. This introduces an element of uncertainty that is not present in sound money exchanges.
The MMT Perspective
On the other side of the argument, advocates of the Modern Monetary Theory (MMT) argue that debt can function as money. Under MMT, the heavy reliance on debt to fund government spending is not a fundamental problem if debt is treated as a form of money. This viewpoint suggests that the US's enormous debt burden (currently exceeding $22 trillion) is less concerning if those debts are backed by potential future credits, rather than the risk of default.
Reconciling the Debates
The debate surrounding debt as money highlights the complexities of our financial systems. While there are valid arguments on both sides, the core issue revolves around the inherent risks associated with debt compared to the certainty of money. Money, in its most stable forms, is intended to provide a reliable medium of exchange free from the uncertainty of debt. Thus, until debt can be guaranteed with the same level of assurance as money, the two cannot truly be considered equivalent.
Conclusion
The notion that debt can be treated as money remains contentious. While certain forms of debt, such as government bonds, can offer stability and reliability, the inherent risk associated with other forms of debt sets them apart from traditional forms of money. The ongoing debate serves as a reminder of the foundational importance of monetary systems and the need for a nuanced understanding of financial instruments.