By Carlos García Hernández

Originally published in Spanish on 1/7/23.

Definition of a State: a territory with fixed borders under a central authority with the capacity to issue national currency and to impose debts in that currency on all residents of the State.

Consequence I: the national currency takes its value from the need of citizens to settle their debts with the State.

Consequence II: before collecting the imposed debts, the State has to spend in national currency to make paying the debts possible.

Consequence III: the State gives rise to a market in which goods and services are bought and sold in exchange for the national currency in order to settle debts to the State, self-sufficiency and savings.

Consequence IV: the State can acquire on the market everything that is for sale in the national currency, since as a sovereign issuer it cannot run out of its own currency.

Consequence V: the State’s production possibilities frontier is limited by the real resources of the economy, not by the State’s financial resources in national currency.

Consequence VI: the State can increase its production possibilities frontier by importing goods and services from foreign markets.

Definition of economic policy: introduction by the State of endogenous and exogenous variables in the economic cycle.

Endogenous variables: variables introduced by the State that must be complied with by economic actors in order to participate in the national market (laws).

Exogenous variables: variables that the State allows to be decided by private actors participating in the national market during the economic cycle.

Proposals of fiat socialism:

I. Convert the following variables into endogenous variables of the economic cycle:

1. 1. Guaranteed and permanent full employment through job guarantees based on employment buffer stocks.
   2. Full and prudent use of natural resources.
   3. Guarantee to every citizen of food, shelter, clothing, health services and education.
   4. Social security in the form of pensions and subsidies.
   5. Guarantee of decent labour standards.

II. Allow citizens to decide which variables should be endogenous or exogenous in the economic cycle by democratically deciding the extent of private sector participation in the economy.

Practical Exercise:

Based on the above, consider what economic policy should be pursued by the Left. That is, which variables should the Left incorporate into the economic cycle as endogenous variables and which variables should be considered exogenous?

***

The proposals of the Spanish Left and of the Western Left in general coincide with the proposals of fiat socialism, except on the first, and most important, point; permanent full employment guaranteed by law. The Spanish economic cycle incorporates as endogenous variables the defence of nature (unsuccessful), the guarantee of food, clothing, health services (insufficient) and education (underfunded), social security in the form of pensions and subsidies (too low) and legislation (not complied with) on labour standards. Left out of the economic cycle are the right to housing and above all the right to guaranteed work.

Why does the Western Left not guarantee access to a job? Because of their inability to understand that the level of unemployment is a political decision, just like guaranteed education or healthcare.

The definition of a State, the consequences of this definition and the definition of economic policy referred to at the beginning of this article describe what is called the monetary economy of production. In this economy, what mobilises human and material resources to create consumer goods are debts to a central power that issues the money it demands is paid in the form of taxes. Consequently, and if we consider consequence IV, the State can acquire in national currency all unemployed labour in exchange for wage labour, so that everyone who is willing and able to work has a job and a situation of permanent full employment is reached. If, in addition, full employment is achieved through job guarantees based on employment buffer stocks, and floating exchange rates and permanent 0% interest rate policies are adopted, as the modern money consensus holds, the economy can be driven towards what fiat socialism has dubbed the Lerner point, an ideal state of the economy in which both inflation and unemployment are zero.

We have just hit the last frontier of capitalism. Grudgingly, during the 20th century, the workers’ movement progressively wrested access to social rights from the jaws of exogenous variables and introduced it into the realm of the endogenous variables of the economic cycle. Margaret Thatcher and Ronald Reagan were in charge of stopping this process of emancipation. To do so, they created a myth that the Western Left has accepted. This false and invented myth is called neoliberalism.

Neoliberalism changed the definition of the state and with it the consequences of the existence of states. In the neoliberal deception, public spending no longer precedes the collection of taxes, but it is taxes that finance subsequent public spending. Thus, it is no longer the State that chooses the level of employment in the economy, but the private sector that, through its investment decisions, decides the level of unemployment. This is how mass unemployment and not permanent full employment becomes an endogenous variable of the economic cycle. This is also how neoliberalism progressively denies access to social services and gradually returns this access to the realm of exogenous variables of the economic cycle.

The reconstruction of the Left must involve destroying the false myth of neoliberalism and turning both permanent full employment and universal access to the social services proposed by fiat socialism into endogenous variables of the economic cycle. To this end, the deception of tax-financed public spending must be discarded.

The recovery of monetary sovereignty is the first step to be taken by the Spanish Left. The spending and public deficit limits imposed by the European Union and the Euro are the most advanced expression of neoliberalism. Once recovered, monetary sovereignty must turn all the social rights of socialism into endogenous variables of the economic cycle and allow the citizens to decide the size of the private sector through their democratic participation.

You cannot rebuild what does not exist.

Euro delendus est

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The post A practical exercise for the reconstruction of the Left appeared first on The Gower Initiative for Modern Money Studies.