RE: Incomes and Exchange rates; part 2

["Leticia Arroyo Abad" <asecon@xxxxxxxxxxxxxx>]

> De: John B. O'Donnell <jackodonnell@xxxxxxxx>
> A: POST-KEYNESIAN THOUGHT   <pkt@xxxxxxxxxxxxxxxx>
> Asunto: Re: Incomes and Exchange rates; part 2
> Fecha: Martes 16 de Septiembre de 1997 11:59 PM
> 
John wrote:
> > > In logical perception, taxation is sufficient but not
> > > necessary to make a currency valuable. It is not
> > > sufficient [It lacks the ability to respond sufficiently
> > > quickly to changes in value.] to maintain a reasonably
> > > constant value of the currency.
> > 
> > I meant that only when taxation represents something to
> > society it can give value to fiat money. No matter what
> > you tax, if people don't pay taxes and the government
> > spends in such a way that people feel paying taxes is not
> > worthy money won't maintain its value. Especially once
> > government starts financing its expenditure via
> > inflationary tax.
> 
> My comments were to separate two functions:
> 
> 1) Giving value to money; and,
> 
> 2) Controlling the amount of value it has.
> 
> The ability to force the payment of taxes by tendering a specified
> currency is all that is needed to give that currency value. It does not
> matter how wasteful the government is with its revenue to accomplish
> this end.
> 
> Controlling the amount of value the monetary unit represents is affected
> by the proportion of the issue of that currency relative to its
> application to all uses, including tax payments, other government
> transactions and whatever private transactions find the currency
> acceptable.
> 
> As Warren Mosler may point out somewhere along this discussion, so long
> as the currency has value of any amount, the government does not need
> taxes or borrowing to pay its bills. It needs these activities only to
> maintain the currency at a respectable level of value. [i.e. - To
> prevent unacceptable inflation.]
> 
> 			-- jbod
OK, but which is the "acceptable inflation" rate for you?
I don't think you can "trade off" between money and other sources of government expenditure financing methods in economies where there is inflationary memory. Once you expand the high power money supply without a gold or other standard, people will run against their own currency and the "acceptable inflation" will not longer be "acceptable".

Lety