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This is the Human Action Podcast where we debunk the economic, political, and even cultural myths of the days. Here's your host, Dr. Bob Murphy, everybody. Welcome back to the Human Action Podcast. Today I'm going solo and I'm going to walk through and respond to an intriguing article that Warren Mosler brought my attention to. I'm not saying he contacted me specifically, but I saw him posted on X saying he was very pleased to see the release of this working draft. And the. The paper is titled the Mosler Cantillon Menger Synthesis. Right. And there's hyphens in between those names. A complete theory of the price level, and it's called Geochartilism Working paper number one. The named author is George Charles. And this was released in mid April, just in 2026. Right. So a few weeks ago, as I'm recording this. So for those who don't know, Warren Mosler is the godfather of modern monetary theory, mmt. And I'm sure most listeners know the typical Austrian school economist is not a fan of mmt. Okay. Having said that, I personally get along with Warren. He's a fascinating guy. He, like, literally builds race cars, designs them and builds them, amongst other things. And there's a debate. I'll put a link in the show notes page. He and I had a debate at Columbia many years ago. At this point, I looked like a pup in the video. And, you know, he's a. He's a very effective speaker. He, like, sucks you into his world. So I think he's totally wrong with stuff he says about, you know, policy conclusions. But in any event, he's an interesting guy. And so I was curious to see this paper. And let me say, even though most of what I'm going to say in the rest of this episode is going to be critical of this paper, I very much appreciate what it's trying to do. Okay. And also I should mention, and I'm not saying anything out of school here, I contacted the authors, plural, and I've been going back and forth with them over email, and they have a whole series. I think at this point they released three in this. In this Geochartilism working paper series. All right, So I like what they're doing. I think they're good scholars. I just disagree with them profoundly, which again is not surprising because, you know, I'm an Austrian school libertarian and they're coming at stuff from a vastly different perspective. But in any event, I very much applaud the spirit of what they're doing. And I'm Offering this, you might say, well, so why are you doing this episode of the Human Action Podcast on this topic? Number one, because I think this thing is interesting. But more important, my response to this first paper from these guys is going to be, you're misunderstanding the full contributions that Mises made in the Theory of Money and Credit. All right, so as we'll see here in a minute, when I explained to you what they're claiming to do in this paper, they think they're filling a gap in the literature that, oh, yeah, the Austrians, that's where the Menger comes from. In their Mosler, Cantalan, Menger synthesis. They're saying, yeah, the Austrians played a role with their subjective value theory. And then they're going to say, and Cantillon played an important part with what we now call Cantillon effects. But then you needed Mosler to come along much later, of course, he's still living. And finish the trifecta and now give us this complete understanding of how the price level is determined, if you want to use that language. Okay. And what I'm going to argue is I disagree with them, not because I care about, you know, we're not getting the ethics here. We're not talking about, hey, there's property rights. You can't just print money. That's, you know, stealing purchase. No, no, this has nothing to do with libertarianism. This has to do with just pure economics. And I think they are overlooking the fact that Mises solve the problem they're bringing up. All right? And I don't know if they just aren't aware of it or if they're aware of what I'm going to say and think Mises didn't do. But they didn't even mention in their paper. So I would think, at the very least, whether they update this working paper or in future papers, tackle the rebuttal that I'm going to give in this. So for the standard listener of the Human Action podcast, you can see now why I think this is so relevant is because I'm going to take this opportunity to show one of the important contributions that Ludwig von Mises made in the 1912 work that we. The English title given to it is the Theory of Money and Credit. It was written in German, of course, originally. Guido Holzman says that he thinks a more accurate translation of the title into English would be the Theory of Money in Fiduciary Media. All right? Because Mises framework fundamentally, crucially depends on the difference between banks making loans with notes that are backed up 100% by base money in the vault versus gratuitously granting credit where the banks are lending more than they have in reserves. Okay. And so in the massesian framework, fiduciary media refer to notes that banks issue in excess of species that they have in the vault. If we're thinking of it like an economy where gold and silver coins are the money. Okay, so like among other things, Mises says that's what causes the boom bust cycle in market economies. All right, So I think many card carrying self identified Austrian economists today, if you said what did Mises accomplish in the theory of money and credit? They would probably say, oh, he laid out what we now call the Austrian theory of the business cycle. Right. And that's true, he did. But he also solved this problem that you know that this paper ostensibly is showing that no, it took Warren Mosler to plug this gap. Okay, So I think you'll walk away with this with a better appreciation of the genius of Mises. And that's why I have no hesitation to say Mises was the greatest economist of the 20th century. Not even close. And he's up there like top five of all time. All right, so let's go through here. I want now that, now that you know where I'm going with this, I want to first give due to the paper and let me mention before I forget. So the. The listed author is George Charles. That is a pseudonym. There are actually multiple authors and by the way I checked with them and said is it okay if I disclose this or is this supposed to be a secret? And they say yeah, this isn't a secret. And that's partly also why I'm not interviewing the person because they're saying even if we anyway right now they want this just to be a name accounting for the group. So George Charles I believe is referring to the fact that remember it's geochartilism is the label they're giving to what they're doing here, their framework or their perspective. And so the geo has to do with Georgism after named after Henry George are having to do with this. I'm not an expert in this area, but the sort of Wikipedia type explanation is Henry George argued that the like land was a source of external value and that it, you know, and then everything else was like built up with human labor, human contributions on top of just like the raw original value given to us by the land and that he famously was in favor of a single tax on land on the unimproved value of it. Okay. Because then there would be no disincentive effects. Right. So if you bought a parcel of land and then put a shopping mall on it and then increased the market value of that whole property, the pure George's land tax wouldn't apply to the increment because you did all that other stuff. Right. Because we don't want to impede that. But just a pure tax on the raw land itself isn't going to impede. You know, there's not going to be any disincentive effects. Right. It's not that, oh, the earth is going to produce less real estate, less raw land if there's. If humans tax it, like, no, it's just there. Right. That's the idea. And there are problems with that, but we're not going to get into that in this episode. So that's where the George is. And then Charles is because of chartalism. Right. So since they are geochartilists, that's why they picked the name George Charles. Okay. And chartalism has to do with the monetary framework nowadays, most obviously embodied in the MMT camp, where they think money is a creature of the state. And when you're trying to understand the value of money, like the monetary unit, like one unit of money, why does it have this much purchasing power in the marketplace, like right now, why does $1 trade for this many goods? Why not 10 times as much or 110 as much? And a chartless explanation is going to look to the sovereign power of the state to explain where that came from. And we'll see that in this paper. All right, so there, there you have it in terms of where these people are coming from. And that's why, as I'm going through this, if I say they like, oh, and so then they write, I'm not just being sloppy and using a plural when really it's a single author. Okay, now that we've got that housekeeping out of the way, let's dive into it. I think what I'll do, just to bring you folks up to speed, to try to pace yourself mentally, I'll spend, I don't know exactly how long it's going to take me five to ten minutes just going through what they're claiming to do in this paper. And then I'll do another probably 10 minutes or so on how Mises, how you would solve it in the Massesian framework. And then maybe the last chunk just using that framework to then actually explain the value of the dollar and the euro and the yen and so forth. Because as we'll see, ironically, the MMTRs are the armchair theorists who are just completely ignoring history when they talk about the value of money. It's hilarious to me because that's like their big rhetorical club is to just lamb based Austrians and say, oh yeah, you got this theory of barter and money emerging, you know, because there's some tribe somewhere and they were trading stuff with barter and then all of a sudden indirect exchange emerged and blah blah, blah. And no, that's, you know, why don't you go study some anthropology, you armchair theorist? And as we'll see, their own explanation totally ignores the actual history of the major government fiat currencies of today. But that's down the road in this episode. Let us return to my first task explaining to you where these people are coming from. So here's their I think I'll just read the whole abstract. It's just one big paragraph and then I'll go through the paper and pull out some nuggets to emphasize. Okay, so again, the title is the Mosler Cantillon Menger Synthesis Colon A Complete Theory of the Price Level. We advanced the Molsler Cantillon Menger synthesis as a foundational contribution to price theory, arguing that three independently developed bodies of analysis answer complementary sub problems of the single question of how prices are determined. Mosler and they give a site to a 1993 work establishes the nominal price anchor at the point of sovereign spending by the currency issuing monopolist Cantillon circa 1730, describes the propagation mechanism by which that anchor radiates through the economy, conferring differential distributional effects upon first and subsequent recipients of newly created money. Menger demonstrates that relative exchange values form through subjective marginal utility at the point of exchange rather than through embodied labor content. These are distinct questions. The synthesis claims that no prior tradition possessed all three answers, that the Austrian defeat of the labor theory of value and Mosler's nominal anchor are fully compatible, and that the persistent failure to distinguish the nominal price level problem from the relative value problem has generated unnecessary conflict between schools that are on the claims that belong to their respective domains. Correct. We identify the conditions under which the synthesis would be falsified in flag open questions for subsequent investigation. Okay, so like I say, I. When I read that abstract I was like, oh yes, this is great. I was 90% sure I was going to disagree strongly with some of their main points or claims. But what they're trying to do here, what they claim to be doing, I just applaud heartily. Okay, so again, just to give you the big picture summary they're not saying the Austrians are wrong. They're not saying Mosler gave us the answer to everything. What they're saying is Menger and the subsequent Austrians were correct with their subjective value theory and in particular how it overturned the classical labor theory of value. People might not know that although Karl Marx is associated with the labor theory of value, it's not a Marxist per se theory that in general, the classical. One of the ways when you're trying to decide, oh, is a particular writer, should we consider him a classical economist or a modern economist or post 1871 marginal revolution? And you might say, well, doesn't just matter what the date is, but in terms of their style, right? Like, in other words, there could be antecedents who wrote before 1871 where they're getting subjective value theory even though they don't quite have it all nailed down. And there could be people post 1871 who are still writing in a classical tradition. All right, for example, Schraffa is part of what's called a neo Ricardian school, and Ricardo's quintessential classical economist. Okay, so one of the things in terms of deciding where you're going to classify somebody or what box you're going to put them in is, is their theory of value an objective cost or labor theory or, or is it a subjective marginal utility theory? All right, that's a pretty important fundamental distinction when it comes to classifying economists. And how do they explain market prices? Okay, so these geochartilists are saying we give full credit to the Austrians for overturning the old classical labor theory of value. Right? So to make sure you're getting it, it's not just Karl Marx, but you can see types of labor theories of value in Adam Smith and David Ricardo and so on. Okay. Even like the great French classical economists like Bastiat, you can see and JB say there are passages there where they, again, it's not even, they say something is demonstrably false. It's just we don't use that technique anymore when we're trying to think about market prices. Like they, they'll come up with scenarios where the break or the constraint that quote, pins down what the relative exchange ratios have to be is the, the labor power that goes into two different product lines. And like, oh, this, if this thing takes 10 hours of a labor of a certain skill to make, and this thing takes five hours and there are no other important scarce inputs, well, then clearly, you know, the price of one is going to be double the price of the other. Like that's the way they were reasoning. Okay. And again, it's not that what they said was wrong per se, it's just we don't, we have, we think, a much more robust framework. By the way, I will link in the show notes page for a Journal of Libertarian Studies article. Back in the day we had a, we did a whole symposium on Kevin Carson's attempt to rehabilitate the labor theory of value. And so I did, I think a pretty good takedown to show why this really was a situation where economic science progressed, just like Einstein's relativity was an advance over Newtonian mechanics. Likewise, I think the marginal subjective revolution in economic theory that was ushered in the early 1870s by Menger and two others, that that was just hands down, objectively, no pun intended, an improvement. And we now just have a more robust framework that the old classical approach could explain the market prices of goods that were reproducible. And that, you know, has, you explained the long run tendency if things just kind of stayed fixed of the exchange, market exchange ratios of those types of goods. But when it came to something like some random object you find in the woods, you know, where it came from, but it's, it's useful to explain the price of that or stuff like, you know, a Picasso painting that it's not that we say, well, how many labor hours went into it and if we wanted to reproduce it, how much labor power would it take? Like that doesn't make any sense. Like, you know, he's dead. It is what it is. And yet prices are still determined on those things. And so the modern framework can explain all those cases. And it can also explain the relative market exchange ratios of other goods that the old classical theory could handle too. So to my mind, this is just. So the analogy with physics is Newtonian mechanics was really good at explaining the laws of motion for stuff that wasn't very massive and that wasn't moving near the speed of light. And so in that for the, under those conditions, Newtonian mechanics is pretty good, but it wildly would fail outside of those conditions when, whereas relativity could handle everything. Right? So that's the analogy I use. Okay, so but not to confuse you, the geochartilists in this paper agree that yes, the Austrians blew up the old labor theory of value, that it's appropriate they credit the Austrians for doing that. Because I think the Austrians really did more than any other group, utterly destroy it. Like Bambarik's essay or booklet Karl Marx and the close of his system is just wonderful. Okay, so they established that but what they're claiming is all that the subjective marginal revolution really gave us were the tools that, to correctly explain relative market prices. So if you wanted to know why does a house trade for this many cars? Right. In terms of, you look at, oh that, that car right there costs $50,000, that house costs $500,000. So there's a 10 to 1 ratio there in their market value. That's what we're trying to explain. So these guys are arguing the subjective marginal revolution pioneered by Menger that explains relative market prices very well. And it has nothing to do with oh, how many labor hours went into the house versus the car in certain settings that might give you the same answer. But that's not the general open ended framework. The, the mechanism by which you would understand how does a car trade for a house? Just to see, it does what? Like if aliens showed up and gave us some vehicle that, you know, humans didn't contribute to, but it seemed to perform identically to other, whatever Nissan SUVs then we would still be able to value the thing that people would bid on it or whatever. All right, it's not that we'd say, well gee, since we don't know how many hours it took to make the thing, we don't know how valuable it. Like that obviously wouldn't happen. Right, okay. It's just to show that prima facie the quantity of labor hours that went into something is clearly not the definitive explanation for market prices. Okay. By the way, supporters of the labor theory of value might be recoiling what I'm saying here and saying, yeah, we know that, we know what we're saying. Right? And I get it. But still, at the end of the day, to me that's like going down a cul de sac and it's your again, it'd be like someone releasing. No, but Newtonian mechanics, we understand that yeah, it breaks down when you get close to speed of light. But what we're saying is, okay, fair enough, but still the relativity is better. It's a more robust framework. Okay, but again the, the alleged weakness is they're saying it can't pin down absolute prices. So yes, the relative valuation, the subjective marginal revolution explains why a house trades for 10 times as much as a brand new sedan. But it doesn't explain why the house goes for $500,000 in the sedan for 50,000 is opposed to why doesn't the house trade for 50,000 and the car trades for 5,000. Right. That would still respect a 10 to 1 ratio. Just the absolute number of Dollars. Okay, so, and since prices are quoted in absolute, or you might say nominal as opposed to real dollars or wherever the money is that we're talking about, yen, euros, whatnot, then as economists, we should be able to explain that, right? We, it, it's not enough just to explain the proportions of prices. We actually should explain the actual prices that end up on price tags or whatever. Okay. Listed on websites if you're trying to buy a house. So that's what they're trying to do. And they think that Mosler gives the missing ingredient. All right, so let me just jump ahead here. Prior to Mosler, the question of where nominal prices originate had no satisfying answer. In the mainstream literature, central bank models of inflation tracked price changes, but treated yesterday's closing prices as an exogenous input. The nominal level was assumed rather than derived. The fiscal theory of the price level, which is a thing that mainstream economists developed. The most serious recent mainstream attempt on this problem grounds the price level in the intertemporal government budget constraints. The present value of future primary surpluses discounted at the nominal interest rate must equal the real value of outstanding government liabilities. Okay, so just, you're not getting lost. What they're saying here is you need Mosler. What he gave us is how to go from the relative exchange ratios to pinning down the actual absolute levels, the actual number of money units that something costs in the marketplace. Okay. And they're saying if you look at the literature carefully before him, they kind of hand wave this away, that, yeah, you could see a model in the literature where they could track the, the amount of price inflation, like how they could say how much nominal prices would go up in a given period. But even there they're arguing they mostly just took last, you know, the original price or last period's price as a given, and just explained, you know, given how much money the central bank creates, given the demand functions, blah, blah, blah, expectations, whatever you want to throw in there, this is how much goods now cost, you know, how much their price went up, but it kind of just took as a given, last period's price. Right. And then he's saying there actually is an attempt, a novel attempt to answer this problem without just pushing it back a period. And that's what this so called fiscal theory of the price level that guys like Sims and Woodford and John Cochran has a recent book on this stuff, have been advancing. And there they kind of use a Chicago school rational expectations framework, efficient markets hypothesis kind of approach where they're doing like a financial consideration and just Saying like, oh yeah, the present value of future primary surpluses has to equal current government liabilities. And that kind of pins down what the price level has to be for those equations to all be correct. But I agree with these writers when they say in our reading this, meaning this attempt at the fiscal theory of the price level reframes rather than resolves the regression. The price level today is pinned down by expectations about future fiscal behavior which are themselves formed against a nominal price structure whose origin the theory does not institutionally explain. The anchor is pushed into the expectations term rather than located in an actual price setting. Act. Okay, and I agree with what they're saying there, that still, even in the Woodford et al. Framework, it's, it's more just showing you, oh, in equilibrium these conditions would all be satisfied. And it's, it's still, it's not really explaining why someone today does something. It's more explaining the relationship between expectations in the future and like, current values today. All right, so, all right, Bob, what's the solution? I'll give it to you. Mosler's Soft Currency Economics, that's the name of a book that came out in 93, resolves this regression by identifying the institutional source of the nominal anchor rather than deriving it from an equilibrium condition where the state is the monopoly issuer of the currency and where it spends that currency into existence before taxing any of it back. The state is the price setter of first resort. It decides how many of its own units of account a nurse's labor hour is worth, how many a soldier earns, how many a public employee receives, and so on. All right, so again, in the MMT framework, they're viewing it as the sovereign is the issuer, the monopoly issuer of the currency. All right? It's not, you know, contra Milton Friedman, who says, oh yeah, the government has no money except what it takes from you. The MMT people say, what the heck are you talking about, Friedman? It's the other way around. Take out a Federal Reserve note from your wallet and look at it. It's a Federal Reserve note, right? Any money you have, the government first created. You know, with the government slash central bank nexus, viewing those as joined to the hip, right? So you see where they're coming from. And they're saying the only way the government, the public can even be holding cash balances is if the government engages first in some deficit spending where they spend money over and above what they took in, in tax receipts, right? If you start at ground zero time zero and there's no money that the public holds. And the money has to come from, you know, fiat, unbacked monopoly money coming from the government. Well, then how's the public going to get it? The government can't first tax it and give it to them. Right. Because there's nothing to tax. Right. So that's, I'm just going through this just so you understand the MMT camp's position and why, for example, they just think it's nuts when people, budget hawks worry about the federal debt and say we got to run surpluses to pay it down. And in their mind, it's like you're, you would be destroying the currency. Like, what are you talking about? Okay. And so in that framework, now they're saying if we're trying to understand, yes, the subjective marginal utility theory pins down based, you know, on exogenous subjective preferences that we can just assume are given, like to say, why do people like apple pie more than mud pie? The economist is allowed to just say, because apple pie tastes better. Right. Like you, you can stop the explanation there. You're not cheating or you're not dodging the question. It totally makes sense. Or you say, geez, how come farmers devote some of their land to corn, but some of their land to tobacco? You're allowed to say, because people like to eat corn, but they also like to smoke cigarettes. But you can just take that as a fact of the world and then proceed from there and build up your explanation of the market pricing system. Right. So you're allowed. That's not cheating. Okay. But to say, why does a pack of cigarettes cost whatever? I don't even know, is it $10 now and versus why isn't it 100 or a thousand or why isn't it a dime there? They're saying it's not enough just to know that, oh yeah, people like to eat corn on the cob, but they also like to smoke cigarettes. That just kind of showing you the relative values on the margin of different units, it wouldn't pin down the absolute price level. So to understand for these folks what pins down, they're saying, oh, if we have a monopoly issuer of the currency, the unbacked fiat currency of the type that Moser writes about, in which they claim empirically that's what we have today, look around the world. Then we told, we can totally explain this problem or answer this question, that the state, when it, when it issues money out of nowhere and then goes and buys stuff, it is pinning down the price of that thing that it's buying and Just the last little bit, the. In terms of the Cantillon effects, to understand, well, what are they doing with that? And I thought that was just a neat element of their framework, they say, for our synthesis. So the. The two big components are Menger giving us subjective value theory, margin utility theory, which pins down relative exchange ratios, and then Mosler explaining the sovereign issuer of the monopoly fiat currency, which explains where, you know, actual prices for particular items. Where does that come from? So you think the two of those put together. Oh, you can explain everything. We know the relative ratios and we know the absolute levels of at least a few of the things, and then that gives enough information to pin everything down. Right. But you see, say what. What work is Cantillon doing? Let me read that for our synthesis. Cantillon supplies the propagation mechanism, the. The account of how the nominal anchor established at the point of sovereign spending radiates outward through the price structure. Government spending enters through first recipients, contractors, transfer recipients, public employees at the prices the state has set. Those recipients spend at the prices then prevailing in their sectors. Relative prices form through Mengarian subjective exchange around the propagating nominal signal. Without Cantelon, a theory comprising only Mosler's nominal anchor and Menger's relative price mechanism lacks any account of how the former propagates into the latter. Okay, so I'll stop reading from their paper now. I think I've done a fair job there of trying to make sure you understood what they think they're doing and why they're not nuts and how they're being quite ecumenical, right? They're not saying, oh, these Austrians are idiots. They're saying, no, they made this contribution, but it lacked this one thing. Okay, so you see what. What they think they're doing. My only objection to that is Mises totally solved this alleged problem back in his 1912 work. Okay, so let me just walk you through this, and where we're going, they were using the word regression there. It's. It's Mises regression theorem, in case you've heard that. And so let me. Part of what I'm doing in this episode is making sure you really understand the regression theorem, because that gets. That gets invoked a lot, especially when Austrians are arguing about Bitcoin. The regression theorem comes up a lot in this episode. I'm not talking about Bitcoin. I'm just gonna explain to you the historical circumstances in which Mises first brought this theorem to light. Okay, so, but even though the marginal revolution swept the profession and that the average economist, as of 1905 thought, yep, totally. We use subjective marginal utility theory to explain why is it that whatever 10 apples trade for five oranges in the marketplace, assuming that's the ratio, even though that's what they would use still to explain the absolute level of money prices, they thought they needed something else. So what's interesting is the geo chartists in their paper, I didn't see any reference to the so called equation of exchange, the MV equals pq, or I think earlier versions were MV equals P times T. Right where it's the left side is saying that the stock of money times the velocity of circulation kind of measures total spending. And then the right hand side is P is the average price level times Q is like real output or T is the number of transactions. There were different ways of framing it and so both sides necessarily are equal. But then when you think of it like that, it sort of gives you idea like oh yeah, if you doubled the money supply and kept everything else, you know, the velocity of circulation the same and real output the same, well then the price level would have to go up, would have to double. But if you increase the money supply by 10%, but the real output went up by 5% real, then maybe prices only go up, not exactly 5% because of the multiplication, but you get the idea. Okay, so that was how mainstream economists married the subjective marginal utility approach with the total stock of money to come up with what numbers are actually on the, the stickers, the price tags. Okay, as, as an Austrian, Mises didn't like that approach because he thought in economics we don't normally use big holistic macro aggregate numbers to explain things. Right? We use micro. I mean Mises might not have said in these words, but I'm with our terminology explaining his perspective. He said no, we use micro foundations, subjective marginal utility theories, taking individual subjective preference rankings. They're not even cardinal, they're ordinal rankings of stuff different, you know, units of various types of goods and services. And we use that to explain in a hypothetical barter economy, we can explain the relative exchange ratios of goods that way. Bambarik took Menger's approach and really spelled it out. Okay, and so why would we then when it comes to explaining the absolute level of money prices, all of a sudden switch to a completely different framework where we're just looking at the total stock of money in the economy? Why would we do that? That's crazy. That doesn't seem like economics. Right? So what he did in the theory of money and credit is Mises solved that problem. So let Me first explain what the stumbling block was, because when you, when you have this new subjective margin utility approach, it seems like the obvious thing to do is say, oh, so we can explain why if people were directly trading apples against oranges, we could explain those exchange rate. If people were directly trading sedans against houses, we could explain the relative exchange ratios. Okay? But in the real world, in a typical transaction, it's traded. The thing is traded, the good or service is traded against units of money. So why don't we just take that same framework in among the types of things that people are trading, why don't we just put in units of the money good. And just say, oh, are people subjective rankings? Yeah, they like the first apple a lot and then the second apple, but then the first orange, and then the second and the third apple and then the second orange. And you know, you could kind of go that way. And that's the approach that Menger and then Bamba especially built up to show, you know, people are trading horses or whatever, how you can come up with that stuff against bushels of wheat or something, right? So why don't you, instead of just having it be against bushels of wheat, why don't you just have it as against gold coins or British pounds or whatever, why don't you just do that? And then it's the same analysis, right? The thing is, you could do that. Nobody denied that that would give you an answer, but they thought that was cheating. And this is important because the idea was if you're trying to explain, like I said, why farmers plant tobacco and you say, oh, because they can sell it. You say, well, why somebody's paying for that. He's, oh, it's the cigarette manufacturers. They're buying the tobacco. They're willing to pay a price. You say, well, why is it? Oh, because they know we can turn the tobacco with some other inputs into cigarettes and we can sell them for a certain amount. And you said, well, why? How come they can get away with that? Why are people. And ultimately you're allowed to stop the explanation when you say, because people enjoy smoking, right? That, that is a bedrock starting point. And you're allowed to say there's an economist that's not cheating, okay? If you want to explain why do people like smoking, the economist is allowed to outsource that to whoever they want. You know, psychologists, nutritionists, whatever, okay. However they thought where it would be cheating is if you say, well, geez, I see this guy over here, he traded an hour of his leisure, right? He could have just been lounging around, but instead, now he's going to go in that factory and engage in a lot of heavy manual labor, moving stuff around on the off and on the assembly line. He's sweating bullets, and he comes out and, you know, in general, would he like doing that versus lounging around on the beach? No, of course not. So why did he sell his hour of leisure for a hundred dollars? And it's because, oh, he subjectively valued those hundred dollars more than the hour of leisure. So so far as. Yep, that's a true statement. But then you say, okay, but why, why did he value the hundred dollars more than the hour of his labor or leisure? And they said, oh, because he realized, I can take this $100 and go out in the marketplace and buy things with it. And the stuff I can buy for $100, I value more on the margin than that hour of my leisure. So I'm implicitly, over time, trading my hour of leisure today in order to be able to buy goods or services tomorrow or next week, whatever. And subjectively, on my ranking, you know, my ordinal rankings scale, today's leisure is less important to me. I value less than the prospect of getting $100 worth of stuff next week when I go to the marketplace. Okay, so far, we're still on. Good. This is all fine, but there's a problem, because in order to know how much the $100 buys in the marketplace, you have to know what the purchasing power of money is. All right? And if you, if you step back, that's what we were trying to explain in the first place, right? We're trying to explain why is it that you would sell an hour of your labor for $100, but you wouldn't do it for a dime? And so to say, oh, because $100 can buy me a bunch of good stuff, that's not really the end of the explanation. Because if all prices were cut in half or cut, you know, 99%, then those relative valuations would still be the same, right? In other words, you could say, oh, why? You know, maybe if you, if you could buy an hour of that guy's labor for a dime, maybe that would work. Because now what a dime buys in the marketplace is also goes much further, right? You see how I went from a hundred dollars to a dime to buy the guy's labor. So if money is that valuable in terms of its purchasing power, well, then maybe he would be willing to do it, right? So it's so that same disconnect between the relative versus the Absolute is still with us if I were to stop the explanation there. And so that's why economists in the wake of the subjective margin revolution thought this by itself doesn't explain the absolute level of money prices. So the geochartilists are right that Menger alone doesn't explain the absolute level of money prices. It took Mises to flesh this all out. And Mises said, okay, notice there's actually a time disconnect. So before people thought you were arguing in a circle, they thought it was a circular argument because they thought ultimately, if you tried to use subjective marginal utility theory to explain absolute money prices, you would basically say, oh, the reason money has purchasing power is. Is because money has purchasing power, right? Or the reason today money has a certain purchasing power is because today money has a certain purchasing power. And they look like you're just arguing in a big circle. But Mises said, no, no, you got to break up the time element. And he says, right now, if somebody's willing to spend an hour working in the factory to get a hundred dollars, it's because, you know, that's showing the purchasing power of money right now, today. But if he's doing it because he has expectations about spending the money on certain goods and services tomorrow, and that's why he's willing to make the trade today, really, he's forming an expectation about tomorrow's purchasing power. And then if you say, and where did he come up with that? How does he know? Where does he get these expectations about what this hundred dollar bill can buy me in the marketplace? It's from his immediate experience. So we can glibly just summarize it by saying the prices he observed yesterday. So notice we've broken it up. It's not a circular argument. You're not saying the purchasing power of money right now is determined by the purchasing power of money right now, that would be a circular argument, not very compelling. What Mises said is he broke it up, all right? He didn't say the exact same way I am. I'm trying to do this just to make it glib and intuitive for you folks. But what I'm doing is definitely in the spirit of what. Of how he solved it. And he said, no, again, I'm just repeating it. Today's purchasing power is determined, if you want to use that verb, partly by people's expectations today of what the money's purchasing power will be tomorrow. And where do they come up with those explanations from their observations of the purchasing power of money yesterday? So you're not explaining today's purchasing power of money by today's purchasing power of money. You're explaining today's purchasing power of money by reference ultimately to yesterday's purchasing power. Okay so and that kind of lines up with what the Geo Charles was talking about the inflation models in the literature, mainstream literature. So now it looks like, okay, we've got Mises has solved the regression or the, sorry, the circularity problem. But now he's replaced it with another logical problem of an infinite regress. So okay, we explained today's purchasing power of money by reference to yesterday's. But yesterday where those, you know where that purchasing power of money come from? Oh, from the day before. And then you just keep going back forever. So yeah, we're not really solving the problem. Mises, that would be. And that's what economists back, you know, in the late. Well, I don't know if they took it that next step. I'm forgetting I actually had a student when I taught at Hillsdale. She went and she won a prize at Grove City's contest on this for undergrad papers on Austrian economics where she went in this literature and really showed what people were saying and how Mises advanced it. Off the top of my head, I don't remember if they took as the next step, but for sure you can see why they still it looks like that that little move of just put bringing the time element by itself doesn't fix things. It just replaces the apparent problem of a circularity issue with an infinite regress. But Mises solved that too. And he said no, as Menger showed us. Menger gave us an adequate theory of the origin of money and showed us how you could start in a condition of barter or more accurate term in terms of economists would be direct exchange. And how in that framework then there'd be incentives for individuals to start accepting some goods not because they wanted to consume them or even use them in production, because they were going to trade them way in the future because they had certain properties. And then once that snowballed, you could see a full blown money emerge even though nobody planned it. It just kind of quote happens spontaneously. Okay, so Mises saying we already have that. And so when it comes to the money good, that's in the marketplace today, I've shown how I can adequately use subjective margin utility theory to explain his purchasing power right now ultimately by reference to its purchasing power yesterday. And it's true when you say okay, yesterday, where is purchasing power come up from two days ago and so on. But it's not an infinite Regress. Ultimately, we trace it back to the point at which money emerged from barter. And there the subjective margin utility theory totally explains what happened. Right? We already, everybody agrees we can explain the relative prices in a barter economy using the mangarian approach. And so if Menger also told us how a barter economy evolves into a money using economy, I've solved the problem. What else do we need? We've got a complete, logically satisfactory, internally consistent explanation for money prices. Okay, so that's what Mises did, and that's what the regression theorem is. You know, that's where he's showing the purchasing power of mine today is ultimately, it's not like it's, it's pinned down by, but it's dependent on like one of the inputs, if you will, into, you know, pinning down what it is today is the price, you know, the purchasing power money had yesterday. And then you regress back in time. But there's a finite regression, it stops at some point. Okay, so that's what Mises did in the theory of money and credit, among other things. So I like to say he unified micro and macro. All right, there wasn't this bifurcated approach where, yeah, we explained relative prices using subjective margin utility theory, but that absolute money prices is the equation of exchanges, MV equals pq, which is methodologically completely alien to how we explain micro things. Right? And Mises unified it said, no, no, we still use subjective margin utility theory to explain even people trading units of money against other units of goods and services. Totally fine, it gets a little trickier. But there's no problem with that analysis. We're not arguing in a circle and we're not even engaging in infinite regress. Okay, so that was his theory. Now, last point I'll make in this episode. How do you apply that to today's world? Because you say, well, wait a minute, the dollar, we can't trace that back to the days of barter. Right? Like the dot in the answer is all of the major governments fiat currencies that the MMT all would point to and say, ah, yes, that's a monetary sovereign issuing the US Dollar, the British pound, the Japanese yen, the euro, all of those major elements that the MMT ers think, you know, this, this is a type of currency that you need, quote, soft currency economics to understand, get rid of your old gold standard way of thinking. No, this stuff is right, historically, they all used to be tied to the dollar, right? The euro was phased in and replaced the other sovereign currencies of the European countries, which in turn also all had antecedents. You know, back in the classical gold standard before World War I, the British pound and the German mark, the French franc and so on US Dollar, they all were defined in terms of explicit weights of gold. All right, so, and then we can easily trace gold as money and back historically to emerging from barter. Okay, to be clear, it's not that Menger and Mises are saying we have anthropological evidence showing like, oh, yes, and then this one guy here in this, you know, latitude and longitude at this roughly date was the first one to accept gold as a, as a medium of exchange. They're not saying that. We're just saying logically, you can tell a story of how that emerges. So we're not liable to criticism that, oh yeah, your theory is necessarily incomplete. Okay, so that's the framework. And what I'm. Last point I'll make here is why I think it's so ironic to the MMT years. Among other things, not necessarily saying the authors of this paper, but in practice, online, a very common MMT rhetorical move is to scoff. Oh, yeah, you Austrians think you know money. You know, you're not, you're not even looking into the origin of money. You don't care. And what we know for sure is that today's fiat currencies did not emerge from a system in which there was no money. Like America just weren't using dollars. Dollars didn't exist. And then, thank goodness, the US Federal government with the Fed came along in deficits, spent $10 million that period. And so now, thank goodness, now the public has $10 million to work with and we can start buying stuff in the marketplace. We have to rely on barter anymore. That's clearly not what happened. We know that's not what happened. Right? We're not as sure about way back in the day, like, when was the first genuine money used and what were the circumstances under which it emerged? That's mercier, don't get me wrong. But what we can say for sure is the MMT story about starting with accounting tautologies and then reasoning and saying, geez, you know, the only reason, reason people even have money at all is because the government must have first deficit spent it. No, no, that's demonstrably false. That's not where money came from. Originally, under the Constitution, US Dollars were defined as certain weights of gold and, or silver. Okay, so like, that's where dollars came from. People would bring in gold and silver into the mint and they would hammer it into gold and silver coins. It's not even the authorities decided how many dollars would be created in a given period. That was what you would call an endogenous outcome. Just like no one group decides how many barrels of crude oil are going to be brought to market. Likewise, no one group, not the US government or authorities in the year 1810, decided how many new dollars are we going to create this year? That didn't. And I don't even mean because of commercial banks. I'm saying lawful, you know, base money, even that was ultimately determined as an interplay of the private sector and the government setting up the rules for the way you create new dollars in our system is you bring in gold or silver, and then we create the appropriate types of coins based on what you bring in. All right, so I'm just again saying that that historical reality fits in far more neatly with the Austrian approach and that Mises gave us all the tools we need to explain everything and that Mosler is not explaining the current world we live in by any stretch at best. Maybe you could point to then I see some IMT people do the like some sort of colony somewhere, a prison camp or something, where the authorities come in and impose their. Their money on the, on the local inhabitants through violence. Okay, but that's not explaining where today's fiat currencies come from that the MMT's are all pointing to and saying those are the examples of monetary sovereigns and that's what we should study. Okay. All right. So in conclusion, I found this paper by the geochartilist fascinating, but I think they need to read more Mises that he solved the problem back in 1912. Thanks for your attention, everybody. See you next time. Check back next week for a new episode of the Human Action Podcast. In the meantime, you can find more content like this on mises.org sa.