Listener supported WNYC Studios. Wait, you're OK? You're listening to Radiolab Radio from WNYC.

Hey, I'm Jad Abumrad. This is Radiolab. And today. All right, we're back in business. All right. Producer Rebecca Bresler brings us a story about money.

Yes. So it's it actually kind of started like I feel like a lot more things are starting at the show with a tweet. And it's depressing.

It's a depressing development. It is depressing.

But basically, I saw this tweet that said, mint the coin, mint the coin, the coin. So the the coin. Yeah.

So I saw this tweet back in March when the economy was falling into a tailspin. Dad?

Yeah, I'm here.

And the government was talking about the first relief bill for people who were in danger of losing their business.

Dad, hold on. I dropped my phone, OK?

Like my my parents who happened to run a small business in California, people knew that the amount of money they allocate wasn't nearly enough and the government was going to run out of money. You know, I felt tremendous pressure to get on it.

My dad told me it was really confusing. It wasn't exactly clear who you could get money from. He tried one bank, then another, then another.

They were so backed up that I could not get through online. It was a cluster.

And so while all of this was going on, I saw that meant the coin tweet. And it took me to a proposal that would basically solve this whole thing, dump trillions of dollars into the economy to bail all these people out just by making a coin.

OK, so I first just started by calling up one of the guys who got this idea out there.

Rodon, it's Rowand, just by the way. Rowin Oh, my God, I'm so sorry. It's not a problem. I don't really care.

This is Rowand Gray. He's a law professor at Willamette University.

I worked with congressman recruited to leave on developing the ABC Act to hashtag Bitcoin.

And he told me the proposal was to inject two trillion dollars worth of cash into the economy and the way that they plan to finance this.

This would be funded through the meeting and issuing of a series of trillion dollar platinum coins while literally coins worth a trillion dollars.

Yes, platinum coins worth a trillion dollars each.

Why would that fund anything? Well, so the argument goes that under federal law, the treasury secretary has the authority to direct the mint to issue platinum coins at whatever denomination they choose.

And so the way that the Mint would would do this today is whether it's a dollar coin or a trillion dollar coin. The mint sells coins to the Federal Reserve. The Fed puts that amount in the Mint's account, and then the Treasury has that available to spend as part of regular budget operations.

And what would they do with that? Just like suddenly make a two trillion dollars a year?

Well, according to Rowin, I mean, that's exactly right.

You're telling me the money, just Harry Potter is itself into existence the moment they print a coin, how the hell does that work?

And wouldn't that just make our money worth less? So these were the exact questions that I was left with.

And it turns out, you know, once you see it, you don't want to go back to the old way of thinking and talking about these things as I set out to get some of these answers, talking to folks like economist Stephanie Kelton here, because you you realize so much more is possible, it became pretty clear that the only thing I thought I knew about money was from the one thing No.

One.

OK, so where do we start?

Well, hold on. I'm tangled in my headphones. We're going to start with this guy.

I really I really am discouraged by the fact that I feel like I'm getting worse.

That recording from home like this is Jacob Goldstein, co-host of Planet Money, and I'm also the author of a book called Money The True Story of a Made Up Thing.

And he says, To understand where money comes from today, we've got to understand what it used to be.

Let's just do the most in the gold standard, which is the gold standard. Let's do it. Let's do the gold standard.

OK, so, you know, for a long time, gold and silver in varying ways were money. But in the 19th century, the world sort of locked in on the gold standard, which was basically a way of saying that the dollar was really just a paper representation of a little bit of gold. Exactly. Gold would quite literally turn into money. So like you would pull gold out of the ground, take your gold to the U.S. Mint and they would give you money in the U.S. it was, I believe, twenty dollars and 67 cents for one ounce of gold.

And this was the way it was all over the Western world. Gold was really this stabilizing and standardizing common currency.

But what happens when you make that rule is the value of money changes according to how much gold is coming out of the ground.

Can you we just break that down for a second because. Yeah, that's a lot. No, no, it's it's just like one thing falls and then the other thing rises. I'm just like, oh, my God. I mean, so simple.

Here's the simple version. Like with any with anything, with anything in the world, all else equal. And there's a lot riding on that. All else equal, all else equal. The more of it there is, the less each one is worth. And that's like basic supply and demand. Right. The supply goes up, the price comes down. Which is another way of saying in the gold standard world, the more gold there is, the more expensive things are going to get to help visualize this, Jacob says.

Imagine it's the eighteen forties and you've just arrived out in California and twenty dollars an ounce of gold.

Yeah, buys. I don't know. What do you want to have a God. What do I want to have. I don't know. A car.

Well there were no cars there. That's right. Horse. How about a horse. Oh that sounds great.

That sounds great. OK, so one horse costs twenty dollars or an ounce of gold, but now let's say there's a gold rush. OK, suddenly gold is flooding in. The availability of horses is still the same, but gold is everywhere.

What happens in that moment is inflation.

Prices go up because the more money you put into the world, the less valuable each piece of money is going to be, the less it's stuff it's going to buy. So when there's a rush, my twenty dollars doesn't buy me a horse anymore because gold isn't that hard to come by.

So now maybe I need to spend thirty dollars, maybe I need an ounce and a half of gold to buy a horse.

And this phenomenon throughout the 19th century just had prices whipsawing more gold would be discovered and the price of everything would go up.

There would be inflation.

But then fast forward a couple of years. Gold became scarce and so prices fall lower, prices deflation.

But then just a couple of years later.

There's a gold rush in the Klondike and there's a gold rush in South Africa, and because suddenly more gold is coming out of the ground. Prices start going up.

And this up and down and up and down.

That is what happened in America for decades, where gold, something supposed to keep money stable, was actually doing the exact opposite.

Like the whole world's price level was sort of arbitrarily determined by how much gold is coming out of the ground.

All right. Maybe it's a stupid question, but like, why not just do it a different way, like untie the dollar from gold and go a different direction? There were people advocating for that.

There's a whole presidential election in 1896 that's about money and what should be money.

But it never really got anywhere, in part because, like, I don't know, it it was hard to imagine an alternative as long as the dollar was tied to gold. The thinking went it meant something like it meant a piece of metal that you could go and trade it for. And if that was no longer the case, I mean, I don't know what does money mean at that point? I mean, to go off gold would require people to fundamentally rethink what money was.

And so this up and down and up and down and up and down continued.

And what finally breaks this cycle is not some change in the way people think about money, but rather.

The depression, the stock market bubble in October 1929, the stock market crashes, the economy starts to collapse, people start to lose their jobs. One man out of four unemployed.

And there's just a massive wave of bank failures. And the federal government just can't seem to right the ship. But there is this sort of fringe group of economists who have been arguing that the problem is the gold standard, that being on the gold standard has not given America the sort of latitude to put more money out into the world to get people spending.

Basically, they're saying we need to get more money in people's pockets to kick start the economy. But on the gold standard, the only way to get more money is to find more gold somewhere.

And Roosevelt supported the idea that the gold standard was the problem. And so after Roosevelt is elected in this just like insane few months in 1933, he just completely.

I don't even know what the words he like, the amount he does with money in like basically March and April of 1933, like completely throws out, you know, hundreds of years of the way money works in the United States must take firmly in its own hands the control of the gold value of our dollar, including the gold standard itself.

I am authorizing the Reconstruction Finance Corporation to buy or sell gold at prices, to be determined from time to time after consultation with the secretary of the Treasury and the president, he breaks that, you know, sacrosanct rule that twenty dollars and 67 cents gets you an ounce of gold.

And like that moment in the spring of 1933, like that is the great sort of break between traditional money and money as we know it now.

I guess then it's like, what does money mean if it no longer means that you can redeem it for gold? Is there like a crisp way of describing what it means in this new world order?

I mean I mean, maybe the question is like, what is what is it backed by? What is it? What does it rest on? Right.

And clearly, it used to be the foundation of money was gold. Right. I think now the foundation of money is the government. Right. Like whatever money you're using, the thing you are trusting in is the government that issues that money.

And Jacob says that means that the government can kind of just print as much money as it wants, including this trillion dollar coin. It can mint it and poof, all of a sudden there's a trillion more dollars in the world.

I understand those words, but they don't they're somehow balance right off of my head.

I guess I. I think I'm really confused.

I will I will do my best to unconfuse you after we take a quick break.

Hey, my name's Laura. I'm calling from London. Radiolab is supported in part by the Alfred P. Sloan Foundation, enhancing public understanding of science and technology in the modern world. More information about Sloan at Sloan. Duke Science reporting on Radiolab is supported in part by Science.

Sandbox is Science Foundation initiative dedicated to engaging everyone with the process of science.

Three to one. No more break. Hey, I'm Jad Abumrad. This is Radiolab here with producer Rebecca Bressler, who before the break told me that money isn't based on anything real and the government can just apparently make as much as it wants.

That's what you said kind of on the record, saying that I I stand behind that. But just to recap real quickly, so there's this idea that in order to save the economy from this free fall that it's been in for the past many months, the government should just print trillions of dollars of new money, like print a couple of platinum coins, slap a trillion dollars on the face of it, and put that money into the economy. And according to a bunch of economists I've been talking to, they can just do that.

They could just about why why have a coin? Why not just print the money?

I mean, if you want to get into it, we can get into it. But I mean, I don't know. I mean, is there is there a good answer for that? Well, it's like a legal quirk that allows them to do that with platinum. Like, you can't do it with other metals, with platinum. Only with platinum only yet. Really. Yeah. It's just this sort of weird quirk of a law basically to just like help the Treasury make money through collectible coins.

One of the ways that the government actually makes money is selling collectible coins. So they started selling platinum collectible coins. But in order to sort of give them the flexibility to just kind of like make money, they can put any number on the face of the coin. And that's how much it it is worth.

Wow. There's a whole, like, procedural Wangary happening.

Oh, for sure. And it's because of this procedural Wangary that the government can just print these coins, say they're worth a trillion dollars and throw them into the economy to keep everybody afloat.

But but but but then I know it's so it's it's so interesting on some level.

I understand what you just said, but on another level, I'm like, now, if the government's going to give people money, somebody's got to pay for that.

I don't know who. I don't know who it is, but somebody's got to pay that money back.

Well, if you're looking for more covid bailout money, we don't have any. Congress has spent all the money.

That's exactly the argument some people in Congress make against these stimulus bills. The coffers are bare. They say we're out of money and the only way to get more is to go borrow it from somewhere. Right. Which adds to the national debt and freaks everybody out. And that's where these bills tend to get stuck. Yeah, but no, no, no, no. Turns out he doesn't have to work that way.

The federal government of the United States of America has the sole legal authority to issue our currency. It can literally never run out of money.

This is Stephanie Kelton, an economics professor at Stony Brook University. And she says the government's not like you or me who need to earn or borrow money in order to spend it.

Congress has the power of the purse, which means Uncle Sam's pen that signs the government's checks and funds any spending, as long as there's ink in it, can fund any damn thing they choose.

And that's the idea behind this trillion dollar coin. Congress could use it to just add a couple trillion dollars to the economy without adding to the national debt. Exactly. And, you know, this idea sounds kind of out there, but we've sort of done something like it before and pretty recently is going to be one of the watershed days.

So.

Jacob Goldstein, again, so start with the financial crisis. Let's talk about the speed with which we are watching this market deteriorate. So if you go back to the crash of 2008, the economy's collapse and the losses staggering, the fear climbing and the financial crisis is so bad, the government is like, we've got to do something.

Yes, we've got to get money into people's hands and we've got to get them spending to save the economy.

So then the Fed, the Federal Reserve, and I'm not going to explain any of these things and you can explain them somewhere else. We can talk a little bit later. The Fed does a lot, but think about it like our governments bank.

So the Fed says, OK, we're going to do this thing we've never done before. It's amazing what the Fed does.

What the Fed does is the chairman of the Fed, Ben Bernanke, aside from the president, he's the most powerful man working to save the economy or like one of his people, sends a signal to this room in downtown New York City at the New York Fed.

There is a room and it's just a normal room.

And in this room, someone's going to receive that message, head to the computer, open up a spreadsheet ish, maybe a little more complicated, but with just a few keystrokes, they just create trillions of dollars on their computer out of nowhere. So in the financial crisis bailout situation, they just made up a whole bunch of new money and dumped it into the economy.

Well, yeah, I mean, in the end, that money went to the banks and just kind of sat around. There wasn't like a coin that would give the money straight to the people. But yes, they just waved trillions of dollars into existence that hadn't been there before. Wow.

There's some you just kind of blew my mind. I just assumed that the money lived somewhere, I don't know, in a basement or a bunker.

No, I get that money is no longer backed by gold. And so now it just lives on a computer and you can create it by pressing a few buttons.

But even if you can do that, even if you can just add some zeros to a spreadsheet or whatever, it still seems like that would be a major, big deal.

Like it would have blowback.

Like, wouldn't you arrive at the very same scenario as the gold rushes where the more money that is out there, the less valuable that money becomes?

OK, and the Xoom is officially recording. OK, great. OK, we did it. Thank you so much. OK, so yes, there is a danger in doing something like this.

We don't solve our problems by printing money because if we do that, it threatens to make our money worthless.

This is Betsey Stevenson, an economics professor at the University of Michigan. And she told me that printing money can have a similar effect to those gold rushes.

There's more dollars, there's more money, but there's not more real stuff. And that's when we start to run the risk that it starts to push up prices.

OK. And this is actually something you can see play out right now in Venezuela. Venezuela has for years now been wrestling with hyperinflation. Venezuela already has the world's highest inflation. And it looks like the economic crisis there is about to get even worse.

What happened in Venezuela is sort of complicated, but around 2014, the price of oil collapsed and the cost to import goods to Venezuela rose. So to keep up with that, the government started printing money.

Effectively, what we're doing is putting more money on the street. More notes on the street means depreciation in the currency and nothing else.

And as the money became worthless, they just kept printing more.

Central Bank hasn't been able to even print currency fast enough to keep up with inflation. And Venezuela's government can't afford the paper for the bills to no to completely that.

This is Gustavo Macondo Alex. He's a journalist in Venezuela that month to month and he spoke with this woman.

Her name is Arcelia del Carmen Vilchez Romero. She's seven years old, used to work as a secretary and is now retired, living off her pension rather than being.

And back before the crisis, Arcelia lived comfortably off that pension.

And India, she could buy food, clothes, groceries for me, Sobrino, even extra stuff like a new bicycle for her nephew.

But as Venezuela's economy spiraled out of control officially, Venezuela had 180 percent annual inflation last year are his pension money.

Hundred and seventy five percent became worth less and less.

Annual inflation rate is now running at around 80000 percent, they say could reach 300000, 400000 percent this year into the three year term.

But another but another.

And today, one month of our pension can only buy her a single pack of toilet paper.

Looking for money, money? No, there's no light.

And she's very afraid of getting sick. The last time she tried to purchase medicine, it cost more than one month's pensions at the center.

Imagine it. Let me imagine it. Wow, I don't know that I fully appreciated how bad inflation can get, and what you just described does feel like the classic answer to that question of why can't we just print more money?

Yes. And what happened in Venezuela is different than what might happen in the United States. But this is the fear that people have when you just print more money. Right. But according to Jacob Goldstein, here's the very weird thing. In the years after our government just printed all those trillions of dollars, we did not get inflation.

Inflation was mysteriously, persistently low.

And it has been ever since. Huh. That's weird.

It's crazy. This is what everyone thinks, right? You add more money, you know, whether there's a gold rush or the Fed puts it into a spreadsheet, the value of that money should go down. Prices up inflation. Yeah, well, so it's not working that way. Do you just throw the rulebook out then? Like, what do you where do you go from there?

So I mean, so there are explanations, right. There are explanations.

Here are some of them take talk me through a bunch of these reasons. It gets pretty complicated. Inflation is still kind of mysterious even to the experts. But let me just tell you about this one reason, OK? And it's actually about our expectations.

Yes. What people expect about inflation actually affects whether there is inflation and how much we.

I'm sorry. You're saying if I think there's going to be inflation that somehow manifests inflation into existence?

Yes, exactly right. Exactly right. Well, how the hell does that work?

OK, so let's take an example. You are saving to buy a new car, OK? And you're thinking that you're going to buy that car like next year, maybe the year after, but then you start realizing that over the last couple of years, prices have been consistently going up.

It was six percent and that it was seven percent.

So then this year you're thinking, I know what it's going to be and you know, it's going to be it's going to be eight percent because that's just the world we live in.

And so if you think that prices are going to go up by eight percent next year, you're not going to wait to buy that car. Right. You're going to go out and you're going to buy it now. And everyone's thinking about this, right? Like for you, it's a car.

For someone else, it's a laptop. I am going to get a few extra bottles of my beauty supplies because they are already very overpriced. And so when everyone goes out and starts buying more stuff, it puts this pressure on demand for that stuff.

If demand for stuff for everything goes up and supply stays the same, prices will go up. Right, right.

And like so expecting inflation can literally cause it.

But because inflation has been absent for so long, we just live in a world where we expect that prices aren't going to go up very much.

And so that expectation, it effectively keeps inflation low. Oh, my God. So it's a self-fulfilling prophecy.

It is absolutely a self-fulfilling prophecy.

But so what's so interesting is like what's happening here is trust, right? We are we just trust that our economy is going to work. And with inflation nowhere in sight right now, I think about this trillion dollar coin idea and I feel really conflicted and I'm not alone. It's a really controversial idea because there are risks here. Absolutely. Stephanie Kelton told me, you know, if the government just keeps pumping money into the economy, there will come a point where there's too much money floating around.

And on that point, we can have real disagreements, we can have debates, we can talk about where the limits are.

But but when printing money, like one of the big things you have to consider is where that money's going. Right? Like if everyone has more spending money, for example, than like, yeah, the competition for your car or my shampoo is is going to rise. There is going to be more money out there, more money chasing the same amount of stuff. Right. But in the situation that we're in right now, you know, we're in this pandemic and businesses are shutting down.

For a lot of people, this money is just filling a hole that this pandemic has created. Like my dad, for example, he's not using it to go buy a bunch of stuff that's going to just drive up the price of milk and eggs. Like he's just keeping the lights on. He's using that money to pay his employees.

We also used it for rent.

And like so many other businesses right now, had we not gotten the money, I'm almost certain that we would have closed our business. I mean, like my dad got so lucky, like he was very close to closing his business and I just don't understand why why you have to be lucky. Yeah, like the government could mint these trillion dollar coins. They could pour a lot more money into the economy than they are right now. But there's this feeling that adding so much money into the economy is against the rules or something.

Yeah, like it's a machine, huh? But then, you know, just talking to Ryan, he gave me this other analogy. He said, think about it like a game. And the government is the referee.

The goal of the referee there is to manage the points in such a way as a good game gets made.

You know, the referee doesn't need to, like, take points from some people in order to give those points to someone else. They're just there to manage the flow of the game. And gamers can change. Right. Just last season, college basketball moved the three point line back because it was too easy to hit that shot. And just like FDR had to get off the gold standard to save the economy after the Great Depression, like maybe we're at another inflection point where it's time to change the game.

It's unnerving to think of the big infinity sign in the sky because it's like bowling without bumping lanes. You know, if you have the power to create money in an infinite amount. Obviously, that doesn't mean you should spend an infinite amount.

But if you have that power, if you functionally have an infinity sign next to your bank account, there's no external discipline, sort of like when you become an adult, you realize you could just eat pizza every night if you stop you is that you have to grow up and not do that. Now, that doesn't mean you can't ever eat pizza. So you have to make that decision on your own terms about what those limits are.

The only discipline comes from us. This episode was reported by Becca Bresler and produced by her and Simon Adler, special thanks to Justin Hill, Edwards and Gustavo, a condo.

Alex, there's so much more to this stuff than we could get into.

If you want to learn more, we have links on our website. You can check out Stephanie Chilterns book The Deficit Myth. Betsy Stevenson's podcast called Think Like an Economist. And of course, Jacob Goldstein's book Money The True Story of a Made Up Thing. Not to mention, of course, the podcast. He works on Planet Money. They are amazing. And before I go, I just want to say a very special thank you and goodbye to Michele Harris, who has been our fact checker for the past several years and is moving on.

Thank you for Keeping US Honest, Michel. We will really miss you. And that is it. I'm Jad Abumrad. This is Radiolab.

We'll see you next week, maybe sooner. Hello, this is Hope Kamer calling from Portland, Oregon. Radiolab was created by Jad Abumrad and is edited by Sean Wheeler. Lulu Miller and Lateef Nassr are our co-hosts. Dylan QIf is our director of Sound Design. Suzy Leuchtenburg is our executive producer. Our staff include Simon Adler, Jeremy Bloom, Becca Bressler, Rachel Cusick, David Gabriel, Matt Kielty, any Mikio and Sarah Khari area and WOAK, Pat Walthers and Molly Webster with help from Cima, Olia, Sarah Back and Johnny Moments.

Our fact checker is Michelle Harris.