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Open Letter to Mike Norman

Mr. Mike Norman
Mike Norman Economics

Dear Mr. Norman:

Peter Parlapiano, a reader of my and Russ Roberts’s blog, Café Hayek, sent me a link to your March 30 blog post in which you argue that no additional money (and, hence, no additional inflation) would be injected into the economy if Uncle Sam buys back all outstanding U.S. Treasuries with newly printed dollars.  You make your point – as “You” – with the following imaginary dialog:
“Debt monger: How are we going to pay it [Uncle Sam’s debt] back?

“You: The government exchanges dollars for those Treasuries. Holders of the debt give back their Treasuries to the gov’t in exchange for dollars and Voila! no more debt.

“Debt monger: You mean ‘print money’ to pay off the debt?

“You: That’s precisely what I mean!

“Debt monger: Are you serious?? That will create hyperinflation!

“You: No it won’t.

“Debt monger: What?? Are you crazy??

“You: Not at all. You are taking away one form of money–the Treasury–and simply replacing it with another form–US dollars.

“Debt monger: But Treasuries are not money!

“You: Oh really? If I had $10 million in cash and you had $10 million in Treasuries, would you consider yourself poorer than me?

“Debt monger: (Confused look, but you can tell he’s thinking.)

“You: I rest my case.”

Your imaginary dialog, Mr. Norman, fails to prove your point.  The reason is that you confuse wealth with money.  Let’s extend the dialog a bit further:
“Debt monger: Not so fast.  I’m not confused so much as startled by your question.  Let me ask if YOU believe that, say, a commercial building worth $10 million is money?  What about a $10 million plot of land?  How about an inventory of potting soil valued at $10 million?  Is that potting soil money?

“If You answer ‘yes,’ then You are fundamentally confused about the definition, nature, and function of money.

“But if, as I suspect, You answer ‘no,’ then surely You can see that a thing’s exchangeability for money – including a U.S. Treasury note’s exchangeability for money – does not make that thing money.

“I rest my case.”

Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030


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