Connecting Fiscal to Monetary Systems

[John Gelles <jjgelles@xxxxxxxx>]

	Fortunately, Alan Isaac is discussing a small
	piece of Warren Mosler's "Soft Currency Economics".

	From the day he first posted a part of it, and
	offered us its URL on the net:

	     http://inca.gate.net/~mosler/softecon.html

 	I have been studying it.  Its logical emphasis
	is that government MUST budget a deficit, year
	after year, every year, to prevent deflation,
	and loss of private sector capital and earnings
	on which prosperity may depend in a post
	Keynesian free economy.

	Without Mosler's intimate understanding of the
	monetary aspects of the budget policy struggle
	in Washington (and wherever pkt is engaged),
	I had reached the same conclusion:  The issuer
	of fiat money must spend more than it sucks
	back in taxes for profits to grow and their
	counterpart physical benefits to grow as well.

	Now Mosler has favored this forum of economists,
	not in search of lawyers like Canova and myself,
	who may agree totally with much of "Soft Currency
	Economics", but looking for PHD support from
	Alan Isaac, Barkley Rosser, Gonzalo Fonseca,
	James Galbraith, Paul Davidson, Steve Keen,
	Ric Holt, and a great many others, to prove his
	case for necessary continuous deficit, of a
	size that fits an economy and its potential for
	physical growth.

	Forgive my directness, but this forum has been
	given a golden opportunity to do what Paul
	Davidson always wants to do -- approach pkt
	from the logical side (before waiting for
	new statistical analyses aimed at empircism).

	I do not think logical proof will be sufficient
	to accomplish the political goals that Mosler's
	theorems would support -- if someone wished to
	pursue them.  For that, the pens of our policy
	writers are invited to get into this matter.

	I do not think there is praise enough for
	Mosler's move.  Some of his sentences may strike
	you as "a special view" of phenomena we have
	looked at differently.  No matter:

		(a)  Let our best scholars prove him
	right or wrong in the logic of fiscal and
	monetary systems based on fiat money in a
	post keynesian free economy.

		(b)  Let our best writers take any
	positive finding from (a) above, and help Mosler
	influence opinion makers here and abroad.

	Signed: jjg


On Fri, 2 Feb 1996, Alan G. Isaac wrote:

> ...  -- I'd like to refocus on what I took to be the
> core claim. The claim I thought was being made was that
> there is some necessary link between the Federal
> deficit and the money supply. (That this is false
> should be obvious just from considering state level
> finance.) That appeared to me to be the content of the
> claim that:
>              i. since we need money to pay taxes, then
>
>             ii. the government cannot run a surplus.
>
> This claim is either a stock flow confusion or a
> mischaracterization of the government budget constraint
> (or both).
>
> --Alan G. Isaac
	
	----------------------------------------------

	Warren Mosler will answer from the horses mouth.

	From my understanding, states do not issue fiat money.

	Stocks of money versus flows of money does not appear
	to be relevent -- the velocity of money exchange is
	a stock/flow matter and it affects nominal price.

	Mosler has got to the root connection between the
	issuer of fiat money and those who use it to pay
	the costs of production and distribution and who
	must accumulate profit after taxes.

	If I am warm, Alan, -- would you agree that it looks
	empirically as though deficits do make room for
	rising asset values and accumulated capital surplus
	on the balance sheets of firms and individuals?

	Schumpterer (?) remarked on the "destructive con-
	structive function of capitalism".  I am not a free
	speech absolutist or a writer in the tradition of
	those who love four letter words, but the S. dictum,
	above is full of --it.  Mosler has confirmed by
	an original view that post Keynesian capitalism
	is destructive of nothing but anachronism.

	The level of deficit is crucial.  Mosler may think
	there are self-correcting factors at work that
	I do not yet appreciate.  But proof that deficit
	is logically "necessary" sems to me a giant step
	forward.

	Signed:  jjg  -   jjgelles@xxxxxxxx