Men on a Wall
Here are six men sitting on a crumbling stone wall beside a dirt road. The men are sitting on the wall because they have nothing else to do. They have no land to farm, there is no local job or employment available to them, they have no savings or credit with which to start some venture. So, they sit. Presumably there is some place of charity they trudge off to at the end of each day, where they get some food and water and a place to sleep; but when they wake up, there is nothing really to do except go back and sit on the wall.
It is interesting to consider these men from the perspective of our different political-economic ideologies. The Capitalist (asset-rich business class) believes the only thing that can improve the men’s daily plight is the “free market.” Until some local or regional entrepreneur organizes a tranche of capital and starts a venture that requires the men’s labor, there is nothing to be done except let them sit.
The Populist (wage-earning working class) eyes the men suspiciously because they are potential competitors for the working man’s job—competitors who are often assisted and privileged by progressive government programs to help them find employment. Even worse, they are given government hand-outs for not working, while the working man, who pays his taxes, struggles to get by.
The Progressive (social-minded, college-educated professional) believes that, in absence of the free market coming along and hiring the men to work, the sovereign government ought to hire them to do something useful—anything really, like, for example, getting off the wall and restacking the fallen stones so the wall is tall and straight again. Even better, the stones might be carried to a ravine channeling stormwater and stacked into check-dams that would slow and redirect torrential rains, thus alleviating potential destruction. The Progressive argues that hiring the men to do something—even if it’s just stacking stones in a useful fashion—will put into motion a virtuous cycle of benefits, not just for the men themselves, but for society as a whole:
The men receive a wage which they will then spend in the local economy.
The new spending in the local economy, in turn, will allow merchants to expand their businesses and hire more employees.
There will be less need for charity to provide for people without income.
The men will get exercise and eat better, so fewer of them will end up at the hospital emergency room in need of aid.
The men will learn a skill—even if it’s only the proper stacking of stones—and will acquire the daily habit of working for a living.
The men, if they happen to be fathers, will be able to contribute to the support of a family unit—which will, in turn, aid the fostering of children.
The nation’s storm water control systems will be incrementally enhanced.
As the men contribute to the growing local markets, new opportunities are created for “free market” entrepreneurs to start profit-making ventures, growing the local economy further, creating more employment for working people in general.
The Capitalist response to this Progressive strategy is built upon a single question: How are you going to pay for it? Where is the money going to come from to pay these men to get off the wall and start stacking stones?
This is the pivotal question where the partisan debate (and the Progressive certainty about the virtues of its plan) suddenly becomes clouded with confusion. Adding to the confusion, this is also where the Populist forms an unlikely alliance with the Capitalist—an alliance built on a mutual distrust of progressive government programs and “out of control” government spending on welfare benefits.
This pivotal question, how are you going to pay for it, is also based on a pivotal assumption. Namely, that the financial resources of the sovereign government come from the Private Sector—either through taxes or borrowing. If the sovereign government is going to spend on something—like paying men a living wage for stacking stones—then it must either tax or borrow to do so. The cloud of confusion is created because Capitalist, Populist, and Progressive all believe this to be an uncontested truth—money for public spending comes from taxing the Private Sector or borrowing from it. Where else could the money possibly come from?
From the perspective of the Capitalist-Populist alliance, this steadfast belief means the following things with respect to the Progressive’s strategy:
Entrepreneurs, businesses, and wage-earning working people must be penalized for their efforts by being taxed to pay idle men to stack stones. This is not fair.
Alternatively, the sovereign government must borrow the money for the men’s wages from the Private Sector, an act which will (a) drive up interest rates (b) reduce the capital available for private investment, and (c) saddle future generations of working people with an enormous debt they will have to repay with future taxes. This is not fair or fiscally responsible.
Given the fact that Progressives agree that government spending can only be paid for with tax dollars or borrowed money, they can only respond to these Capitalist-Populist complaints with a few meek rejoinders:
Paying the men to stack stones has “social” benefits that wealthy citizen should be willing to invest in—and that working people should champion because, after all, it might be them sitting on the wall next week, or next year.
It is ethically “fair” for the super-wealthy to be taxed more to help the less fortunate.
So long as the government’s borrowing remains below a certain percentage of GDP, it is a good “investment” that will expand the economy and pay dividends in the long run.
What we now want to consider is that if the dilemma of the Men on the Wall is viewed through the lens of Modern Fiat Money, the argument between the Progressives and the Capitalist-Populist alliance is dramatically altered. If, as the operations of fiat money describe, the sovereign government doesn’t need to collect taxes from the Private Sector to pay the men, the Capitalist-Populist complaint about penalizing working people, businesses, and entrepreneurs is moot. And if the government doesn’t need to borrow from the Private Sector to pay the men, the complaint about “fiscal responsibility” and future tax burdens has no basis.
If it is going to object to paying the Men for rock-stacking, then, the Capitalist-Populist alliance will be left with a single argument: In a market society, it is free-enterprise that ought to be hiring the men—not the government.
And this argument is now something the Progressives can whole-heartedly agree with! Since they no longer must defend the need to increase taxes or borrow money from the Private Sector, they are free to agree with the Capitalist-Populist position while reiterating the original virtuous cycle of their strategy—which is now worth repeating from our new perspective of Modern Fiat Money:
If the sovereign government, without raising taxes on working people, businesses, and entrepreneurs—and without borrowing dollars from the Private Sector—hires the Men to get off the Wall and start stacking stones in a useful way:
The men receive a wage which they will then spend in the local economy.
The new spending in the local economy, in turn, will allow merchants to expand their businesses and hire more employees.
There will be less need for charity to provide for people without income.
The men will get exercise and eat better, so fewer of them will end up at the hospital emergency room in need of aid.
The men will learn a skill—even if it’s only the proper stacking of stones—and will acquire the daily habit of working for a living.
The men, if they happen to be fathers, will be able to contribute to the support of a family unit—which will, in turn, aid the fostering of children.
The nation’s storm water control systems will be incrementally enhanced.
As the men contribute to the growing local markets, new opportunities are created for “free market” entrepreneurs to start profit-making ventures, growing the local economy further, creating more employment for working people— including the Men on the Wall, themselves—thus alleviating the need for the government to pay them to stack stones.
What is crucial to see is that, viewed through the lens of Modern Fiat Money, the ultimate outcome of the Progressive strategy is now identical to the fundamental Capitalist goal—enabling free-market entrepreneurship to create and benefit from expanding consumer markets. The fact that the strategy also enables an upward economic and social path for the Men on the Wall does not diminish this fact but is a part of it.
Likewise, the central grievance of the Populist, namely that his labor should be taxed to support someone who doesn’t labor, is replaced with a virtuous system that (a) guarantees the value of his labor (in the event the Capitalist is unwilling or unable to hire him) and (b) supports the expansion of local economies and employment in general, diminishing the odds of his own unemployment.
When we consider the prospects of displacements Artificial Intelligence is likely to impose on the wage-earning workforce, the Men on the Wall assume a foretelling presence—for the Populist, the Capitalist, and the Progressive alike. What the Populist needs is employment enabling him to be a consumer in the market. What the Capitalist needs is a market of consumers able to buy his products and services. What the Progressive wants is a fair and rational distribution of opportunity. What the operations of Modern Fiat Money uniquely make possible is the fulfillment of all these needs.
Thanks Maarten. It's also, basically, a description of MMT's primary policy goals--the Job Guarantee.
What a brilliant way to look at the three different perspectives, and how they can be reconciled through Modern Fiat Money. Also nice example of a virtuous cycle, how an initial investment can yield so many benefits down the line...