Listener Alicia in Berkeley had a question following our recent broadcast of (Why) Money Matters with guest Graham Hubbs from the University of Idaho. She writes:

My question is if the government prints money which is just pieces of paper to buy goods and services (through employment program) does not that money then take on an intrinsic value? How does that impact your guest’s theory of the deficit? And isn’t there a problem once the cost of servicing national debt exceeds GDP?

We put the question to Graham and he had the following answer:

The questions asked here can, and I think should, be kept separate from one another. When the government “prints money,” be it by actually printing notes or by adding reserves through keyboard strokes on the computer, it creates something with value. Is that value “intrinsic”? This depends on what the relevant intrinsic/extrinsic distinction is. The kind of value that is internal to its mode of production is its value to discharge debts to the state. If the relevant state is sufficiently politically and economically strong, what is produced will also have market value—that is, it will also have exchange value, which will allow it to be used to purchase commodities. For further reading on this topic, I recommend Part III of Alexander X. Douglas’s The Philosophy of Debt. The early chapters of David Graeber’s Debt: The First 5000 Years are also potentially helpful.

As for the question about debt/GDP ratio, this has historically been something economists worried about, but recent macroeconomic conditions and phenomena are challenging that old concern. Japan has been running a high debt/GDP ratio for years and does not appear at threat to collapse. On this issue, I recommend this article by Stephanie Kelton that was just published in the Financial Times.

Thanks, Graham, for taking the time to answer that question. And thanks to Alicia for asking it.

If you have a question that did not get answered during one of our episodes, feel free to submit it to us at comments@philosophytalk.org and we might just feature it on the blog!