Re: Mosler: seminar -Reply

[Hyman Blumenstock <hystock@xxxxxxxx>]

How convenient to blithely change the meaning of "intrinsic value" to
mean "extrinsic value."  The intrinsic value of Gold is that it is
useful in repairing teeth, making pretty jewelry, relay contacts,
bullets.  It is given an EXTRINSIC value as a representaive of other
useful goods that people might want, but that is pure fantasy.  Likewise
the EXTRINSIC value of currency is as an arbitrary medium of exchange,
an obsolete practice since Food became abundant a century ago, but
toilet tissue has more INTRINSIC value than any piece of currency or
bond or stock.

What the "public" wants is to have free access to Real Goods, even if
they have to adhere to the current lunatic rules of having some evidence
of something that represents real good.  All the intermediate
requirements are totally unnecessary, and a burden upon any society.

Hyman

Edward Nell wrote:
>
> It seems that some of the comments on the Mosler Seminar may have
> been based on misunderstandings.  Let me try to restate the point, as I
> see it:
>
> --The question is why should members of the 'public' accept intrinsically
> worthless tokens in exchange for useful and valuable goods.  Of course
> it is understood that an individual does this because s/he knows s/he
> can turn around and exchange the tokens again for a different set of
> equally valuable goods/services.  But the issue is why the public will IN
> GENERAL accept these tokens, why do the tokens become generally
> acceptable, so that the public feels CONFIDENT that they can accept
> them without the risk that will lose the quality of being generally
> acceptable in exchange.
>
> --The question (at least initially) DOES NOT concern coins or tokens
> made of precious metals, that is, having intrinsic worth.  The acceptability
> of such coins has traditionally been explained by the fact that they have
> intrinsic value (based on their costs of production and costs of minting)
> and are at the same time convenient.  There are weak spots in this
> traditional story, and the historical record certainly does not support it
> unambiguously.  The connection with the Quantity Theory of Money also
> needs study - the interpretation depends on how the Quantity Equation is
> read - the direction of causality.  Chartalism may well have a contribution
> to make to the understanding of the circualtion and value of coins of
> precious metal; but this is not the primary point of the argument.
>
> --Last summer in the museum at Montsegur (the Castle of the Holy Grail)
> in the south of France, there were displays of local coins, of tin and lead,
> issued by the local seigneur, intrinsically worth substantially less than
> the face value they bore.  But in the 13th C they circulated in the locality
> for two reasons, because they could be presented at the Lord's granary
> in exchange for a certain amount of grain, or they could be used to pay
> rents and feudal dues.  That is, (even in an era in which money generally
> had intrinsic value) these tokens only had FIDUCIARY value; they were
> valuable because it had been promised that they could exchange for
> something of value or could be used to discharge an obligation.
>
> --Paper money backed by gold, for example, has fiduciary value.  It used
> to say on dollar 'silver certificates' that they could be exchanged for
> silver.  Pound notes still state "I promise to pay the bearer [one, five, etc}
> pound[s]", with a picture of the Queen and the signature of the
> comptroller.  But the development of modern banking has moved the
> monetary system away from 'paper gold', that is, paper whose
> acceptability is based on the promise that it can be converted into gold on
> demand.   Gold has not circulated in the US since 1933, and US domestic
> paper money has not had any kind of 'backing' since World War II.
>
> --So paper money is no longer convertible.  It has shifted from having
> fiduciary value to having FIAT value.  (The monetary system develops
> over time; such development is an aspect of 'transformational growth'.)
> The same with bank deposits- they have also evolved.  There are no
> longer any metal reserves to 'back up' the deposits.  Reserves today are
> simply deposits with the Fed; money created by the Fed (essemtially to
> facilitate clearing).  Such money is valuable because the government
> says it is.  The government is in a position to impose taxes - and collect
> them.  So citizens had better have the wherewithal with which to pay
> them - and that is the paper or bank deposits issued by the government.
>
> --Not all governments can do this.  Russia today is not able reliably and
> effectively to impose and collect taxes.  Dollars circulate in preference to
> rubles in some areas of the Russian economy.    The same goes for
> many other governments.  But where a government is not able to impose
> and collect taxes, the currency will also be irregular.  Many different
> media of circulation are likely to be present, and their exchange ratios are
> likely to fluctuate.  The currency will not be uniform, nor will its value be
> stable.  (A strong government is a necessary, but, of course, not a
> sufficient condition for a stable currency.)
>
> --It is a great merit of Mosler's approach that it highlights the absolutely
> central importance of government in relation to the currency - and that
> the feature of government which is crucial is not the Central Bank, but
> the Treasury.  It is the state's FISCAL authority which underlies the
> monetary system.
>
> --It also provides an important perspective on how things work.  For
> example, taxes don't 'fund' or 'finance' government spending.  We should
> know this already just from the fact that most of the paper money paid in
> taxes is burned.  Cheques which are sent in, however, also 'destroy
> money' when they are cleared, for they reduce the liabilities of the
> government, i.e. the money supply.  The government pays for its
> spending by creating money.  It adjusts the amount of money in
> circulation by collecting taxes and borrowing, where the latter also helps
> to adjust the level of the interest rate.
>
> Mosler goes on to develop an interesting and important analogy between
> state issued money and other commodities.  But before this can be
> discussed, I think we must try to get clear just what he is saying about
> the nature of modern money and its connection to the modern state.  For
> this is basic to political economy.
>
> Edward Nell