Mosler seminar: Tax-driven currency and the motives for credit

[Per Gunnar Berglund <pgb@xxxxxxxxxxxxxxxxxx>]

Warren's latest comment leaves me unsure about
whether he has got my point or not. I suspect that
it is his preoccupation with the zero net of private
credit that makes him overlook the importance of
the gross.

Let me resort to the example of house mortgaging
once more. The borrower takes a mortgage because
his own net worth is insufficient to buy the house
right away. The lender (ultimately, via the bank
intermediary) has the opposite motive: his net worth
is greater than the value of the assets he can use or
employ profitably.

The credit arrangement is basically another way of
letting the dwelling. But instead of paying rent, the
'tenant' judicially owns the house and pays interest on
the mortgage.

The basic motive for the transaction is a disparity in
net worth as compared to the needs and uses of the
two parts. The lender owns more than he can use; the
borrower owns less than he can use. So, there is
clearly an economic potential here: welfare is increased
by the credit transaction. That, I think, is the chief motive
for credit, the basic reason why there is a "gross".

The net can easily be invoked as a "disequilibrium"
between the lending and borrowing conditions. Since the
net must be reflected by the "mirror" of the public debt
(less the foreign debt in the open economy setting),
the demand for the currency (including "stored currency")
may well be analysed in completely different terms than
future expected taxation.

Best,
Per

Per Gunnar Berglund
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