Re: Mosler seminar: Tax-driven currency and the motives for credit (fwd)

[Mathew Forstater <forstate@xxxxxxxx>]

>From Warren:

---------- Forwarded message ----------
Per writes:

> 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".

I think the draft uses a similar example.  I am at a
remote location until Monday pm and don't have access to it.


> The net can easily be invoked as a "disequilibrium"
> between the lending and borrowing conditions.

Doesn't that assume that the state somehow forced the
private sector to absorb its net spending?  In
practice, the state buys from willing sellers, implying that
spending contributes to equilibrium.  In other words, willing
sellers implies a desire to hold that unit of account and
part with the stuff they are selling.  (see FEAPS)

>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.

I think you are getting at something I have discussed
at great length in the past few years.  The question
asked, is whether the demand for money to pay back debt
relates to the value of the currency.  The answer
appears to be no, as in most hyper inflation situations there
was a great deal of bank debt outstanding.

You are perhaps asking it from a different slant.
Does the  demand for credit exert an influence on the value of
the currency?  From that point of view, the answer is
yes, at least in the short term.  If we all decided to borrow
and spend tomorrow, prices would likely rise.  Let me point
out that in terms of the model what would be
happening is a horizontal expansion and a reduced desire to net
save the unit of account.

So perhaps you are using the term 'demand for
currency' in the horizontal component where I would use
the term 'net desire to save?'  I use 'demand for the
currency' to express the 'consumption motive' in the vertical
component.

The desire to borrow is very different than the
desire to sell something, though in both cases the agent is
receiving units of the currency?  Are you not saying that both
are 'demand for currency?'  I agree that they 'are,' and
at the same time I find it very useful to make a distinction.
So I think the model serves us well.

Warren

>
> Best,
> Per