‘Printing money’ is a term that gets thrown around a lot. Often I find it being thrown at me. ‘Are you claiming that the state should just print money to pay for what it needs?’ The question is unanswerable because it is without sense. The key term ‘print money’ just has no meaning in the context of a fiat currency system.
I used to make the mistake of giving a negative answer. But philosophy should have taught me better. Had people asked me: ‘Are you claiming that the state wolf ate rainbows imagine September?’, I would have known not to answer. For a positive answer would entail, ‘I am claiming that the state wolf ate rainbows imagine September’, while a negative answer would entail, ‘I am not claiming that the state wolf ate rainbows imagine September’ – each of which is not a proposition but a meaningless string of words. The only thing to do is to reject the string of words as not being a question at all, merely a meaningless string uttered in an interrogative tone.
It makes no difference that the string contains substrings that, in other contexts, could be part of a meaningful question. It’s harder to see that the question, ‘Should the state print money?’, is meaningless in the context of a fiat currency, because it is a perfectly meaningful question in the context of a non-fiat currency, as I’ll explain below. But since, as I’ll try to show, ‘print money’ has no meaning in the context of a fiat currency, the question about printing money, when asked in a context that assumes a fiat currency, is meaningless noise. Either a positive or negative answer to it is without meaning.
On a strict metal standard, the term ‘print money’ has a very clear meaning. Think back to a partly imaginary past, in which every British pound is backed by a pound of silver. Suppose the government has one million pounds of silver. If it issues one million pound notes, it has not printed money, since each note is just a claim on the appropriate amount of metal. If it prints more than one million pound notes, it prints money. The term is used sarcastically. Since real money is silver, one cannot actually print it. ‘Printing money’ functions grammatically like ‘counterfeiting money’. The product of an act of counterfeiting is not money but counterfeit money, and it is a grave grammatical mistake to suppose that ‘counterfeit’ and ‘money’ stand in the relation of difference to genus; when the gangster opens the suitcase and says, ‘Hey, this is funny money!’, his complaint is not that it is the wrong species of money, viz., funny, but rather that it is not money at all.
If money is actually silver, then printing money does not add to the stock of money; it simply issues more claims on silver than there is silver to be claimed. ‘To print money’ then means, quite clearly, ‘to issue more notes than there is metal to honour those notes, at the given denomination’. Call the point at which the number of notes – claims on metal – equals the amount of metal the threshold point. We can then define ‘printing money’ as ‘issuing notes in a volume that exceeds the threshold point’.
The state can increase the threshold point by changing the backing ratio of each note. Suppose the government declares that each pound-note that was formally a claim on a pound of silver is now a claim on only half a pound; the backing ratio falls from 1 to 1/2. The threshold point then increases from one million pound-notes to two million pound-notes. If the backing ratio falls to 1/4, the threshold point increases to four million pound-notes. What is the limit of this function? As the backing ratio falls towards 0, the threshold point rises towards infinity.
On a fiat currency, the limit is reached. The backing ratio is 0. Each note is backed by no silver at all. Printing money, defined as the issuance of notes beyond the threshold point, is now physically impossible; it means issuing more than an infinite number of notes, or electronic accounting entries. But people who use the term ‘printing money’ do not mean to refer to something physically impossible – otherwise they wouldn’t ask me whether I advocate it. So this can’t be what they mean.
What, then, do they mean? Textbook economics proposes that printing money is an operation by which the state can finance its spending; this operation is distinct from two others, that of taxing, and that of borrowing. But under current arrangements, this, also, is impossible. Suppose the government issues and spends four trillion pounds and only taxes back two trillion. The debt management authority in the Treasury is required to issue and sell new bonds to borrow back the extra pounds, however many there are – in this case two trillion pounds. So out of four trillion pounds of spending, two trillion has been financed by taxing and two trillion has been financed by borrowing. Still, there is no printing money.
Textbook economists will reply that if the debt management authority’s requirements were relaxed, and if the extra pounds were allowed to stay as currency in the hands of the public rather than being borrowed back by the state, this would amount to printing money. To ‘print money’ then means: ‘to issue money that remains as balances of currency rather than being taxed or borrowed by the Treasury’.
But this, also, cannot be what people mean when they talk about printing money. Meaning is tied to use, and it is an essential part of the use of the term ‘printing money’ that it signifies something that is believed to have special inflationary consequences beyond those that follow from borrowing. Now imagine that the Treasury and the central bank agree between them to convert all Treasury bonds into special time-deposit savings accounts at the central bank, with identical term structures and interest rates to the original bonds. The total value of Treasury bonds has now been ‘printed’, on the current definition. But how could there be any special inflationary consequences? The financial position of bondholders has not changed in any way; she who previously held a ten-year Treasury bond paying 2% interest now holds a ten-year central bank time deposit paying 2% interest. She has not gained or lost any spending power, now or in the future. There is no reason for her spending behaviour to change in any way, unless there is some mysterious psychological effect from the mere relabelling of her bond – and even that could be avoided if it were stipulated that her bond would continue to be called a ‘Treasury bond’, and she were not informed that it was now on the balance sheet of the central bank. Since it is part of the common use of ‘printing money’ that it stands for something with special inflationary consequences, distinct from those of borrowing, ‘printing money’ cannot mean ‘issuing money that remains as balances of currency rather than being taxed or borrowed by the Treasury’.
As a last resort, one might define ‘printing money’ as: ‘issuing money that remains as balances of currency not tied up in any interest-bearing savings instrument‘. But, again, this does not match the use of the term ‘printing money’, which signifies something the state can decide to do. Once the state has spent money, it cannot legally prevent people from putting the money into savings instruments; if it refuses to offer any such instruments then private financial institutions can do so. Whether or not money is printed then becomes a matter of private decisions to save, not a decision to be made by the government. The question, ‘Should the government print money?’ is now as meaningless as ‘Should the government John jumps?’ – John’s jumping is John’s action, not the government’s action.
Truth be told, I think that when people use the expression ‘print money’ they are imagining themselves in the context of a metal standard, in which the expression is perfectly sensible. When I point out to them that I’m talking about a fiat currency, they claim that they know this, but that it makes no difference. There is a difference however, namely that their expression and the question containing it become nonsense. The only thing I can say to them is that I don’t understand the question. Undoubtedly, they think they are asking a question of profound importance, but then so does the sham guru who asks whether you’re Thinking the Ultimate You.