The recent statement made by Jared Bernstein, Chairman of President Biden’s Council of Economic Advisers, about the government printing money and lending it through the sale of bonds has sparked a flurry of responses on social media. While Bernstein’s view on money may be flawed, it is clear that many of his critics also lack a fundamental understanding of the concept. In reality, money is simply a medium of exchange that facilitates the movement of goods, services, and labor.
The ability of the government to lend and borrow money is not based on the printing of currency, but rather on its access to the taxable production of its citizens. This unique access allows the U.S. Treasury to borrow and lend large sums of money. In contrast, countries like Haiti or Peru would not be able to borrow in the same way due to their limited production capacity. Money only holds value when it represents actual goods, services, or labor in an exchange.
The idea that printing money creates demand or expands the money supply is a misconception. Money in circulation is a result of production, not the other way around. Producers bring goods, services, and labor to market in exchange for money that represents the value of their contributions. The money that individuals hold in their pockets is a reflection of the production that has taken place in the economy.
While Bernstein and other economists may equate money printing with an ability to demand or borrow, the reality is that borrowing involves the exchange of goods, services, and labor. The notion that fiat money can be produced without limitations is a fallacy. In truth, the ability to produce goods, services, or labor is what ultimately limits the ability to borrow. The fixation on the actions of central banks, such as the Fed, by various economic schools reveals a misguided focus on manipulating interest rates.
Ultimately, the root of the problem lies not with individual economists like Bernstein, but with the faulty assumptions and theories of the economics discipline as a whole. The obsession with central bank planning and manipulation of the money supply is a flawed approach that fails to recognize the true nature of money as a medium of exchange. Laughing at Bernstein’s misunderstanding of economics may actually highlight the broader misconceptions that exist within the field.
