Re: tax driven currency (fwd)

[Mathew Forstater <forstate@xxxxxxxx>]

>From Warren:

---------- Forwarded message ----------

Paul-

Thanks for the very interesting and informative
post.  A few obligatory comments below:

---Paul Davidson  wrote:
>
>
>To be absolutely accurate Keynes writes that "At the cost of not
>conforming entirely with current usuage ] I propose to
>include as State-Money not only money which is itself compulsory legal
>tender but also money which the State or the Central Bank undetrtakes to
>accept as payment to itself or TO EXCHANGE FOR COMPULSORY LEGAL-TENDER
>MONEY". {Keynes, Treatise on Money, VOL 1, P. 6, emphasis added]..
>
> This willingness to exchange certain private sector agents (call them
> banks) IOU's for the legal tender that will discharge legal contractual
> agreements under the CIVIL LAW OF CONTRACTS but not to exchange other
> private sector agents (call them all nonbank entities) IOUs for legal
> tender, makes the bank IOU's money and the non-bank agents' IOUs merely
> a promissory note.
>
> Thus it is not difficult to explain that although taxes are a small
> percentage of income (the usual basis for most government sponsored
> taxes -- rather than a head tax), in a society where legal contracts are
> used to organize almost ALL production and exchange activities, private
> agents --even those who do not pay taxes to the government
> -- e.g., Saudi sheiks, are willing to accept US llegal tender money AND
> US bank money for the sale of oil to anyone --  and since the US
> government does not own any refineries as far as I know -- Saudi sheiks
> never sells crude oil to the US government to earn dollars to pay US
> taxes!!

The Saudis do see all those jet planes, etc. for sale
with price tags in US$ on them, which may be one
one reason to hold them?  But in any case oil does
trade at market prices, so no matter what the currency of
payment insantaneous conversion at market is always an
available option.  So to me the real question is why, at the
end of the day, are net dollar denominated financial assets held
offshore and not spent making purchases of US goods
and services?  That is, the net desire to save $US is
clearly there. And a lot of it is from foreign
central banks.  Clearly a desire to net export on their part?  Our real
gain, their real loss...

>
>
> so I would try to bring Per and Mosler's argument
> closer together by arguing, that perhaps tax-driven money can help
> "explain" how existing non-monetary economies -- e.g., natives in
> colonial Africa and Asia in the
> recent centuries were brought (coerced ?) into the
> monetary economy of
> Europeans colonial powers via head taxes, but that
> the CIVIL law of
> contracts has maintained and spread the use of
> Chartalist money to all
> civilized parts of the globe. (There may still be
> "uncivilized" Amazon
> river tribes, eskimos, south sea islanders, etc
> that have not been touched
> by "Western" CIVILZATION and may still not use
> chartalist money for
> organizing production and exhange activities in
> their closed communities.
> Such societies are probably Say's law system --
> where there is never
> involuntary nemployment -- but neither is there the
> ability to obtain so
> much economic goos from any given resource base as
> the entrepreneurial
> chartalist system under which we live-).
>
> Nevertheless, the idea of chartalist money starts
> in ancient Greece -- not with Adam Smith.  As I point out in my paper on
> "Chartalism vs. Monetarism" (paper given at the Chicago ASSA
> meetings in 1998)
>
> "According to Schumpeter [ 1954, p. 56], Plato can
> be considered the "first
> known sponsor" of the second ?fundamental ? theory
> of money -- an
> anti-monetarist theory that we now call Chartalism.
> For Plato money comes
> into being only once a society has organized itself
> along continuous market
> lines and it is social custom supported by social
> behavior and/or
> legislation that gives money its unique importance
> in a system where as
> Clower [1965] noted "goods trade for money and
> money trades for goods, but
> goods do not trade for directly for goods".
>
> "The Monetarist vs. Chartalist distinct
> conceptual streams can be traced
> through the centuries-old  development of economic
> thought. For example, in
> the nineteenth century this difference of views
> involved the debate between
> the currency school and the banking school.
> Nevertheless, the vast majority
> of economists over the years have either explicitly
> or implicitly accepted
> the  monetarism vision of money at the back of
> their minds. Certainly the
> most famous economists of the 18th and  19th
> century -- Adam Smith and Karl
> Marx -- both accepted the Monetarist view as did
> Petty, Locke and Mill.
> Followers of the chartalist view since Plato-- with
> one except-- are far
> less well known. To today's generation of
> economists, perhaps the only
> recognizable chartalists are John Law, Georg
> Fredrick Knapp and John
> Maynard Keynes."
>
> "Most economists today recognize that the
> Monetarist vision of money
> involves the conceptual idea of a barter exchange
> of a producible good for
> an ultimately commodity backed money. The meaning
> of Chartalism, however,
> is far less clear. In fact, Schumpeter defines the
> chartalist view as
> merely the negative of the Monetarist conception
> (where Schumpeter equates
> Metallism with Monetarism). This negative
> connotation is designed to
> immediately put the impartial observer off the idea
> that Chartalism is a
> "good" or "proper" view. One purpose of this paper
> is to provide a better
> perspective."
>
> (END of quote from Chicago paper)
>
> Perhaps the most interesting thing  I find about
> the Mosler argument is the
> association of Adam Smith with Chartalism  and
> tax-driven money to attempt
> to justify the notion as well established in the
> history of economic
> thought -- while Shumpeter, perhaps the greatest
> historian of economic
> thought in the 20th century, classified Smith as a
>  Monetarist".  After all
> Adam smith's inquiry into the "wealth of nations"
> agued that money was
> neutral, i.e., that the merchantilist view that
> running exports surpluses
> to increase the gold money in the system did not
> increase the real wealth
> of the community.

Makes sense to me.  I think the Smith quote we use
shows an awareness and understanding of how a .
tax driven  currency can function. I believe he goes into some detail
along those lines regarding the US colonial govts  As I type Mat is
digging up the quotes.

That is not to say that Smith did not recognize
commodity money as an (existing) alternative.

> (The trouble with trying to pin Smith down to any
> unique principle is that
> he was all over the lot philospohically -- not only
> talking about the
> importance of an unfettered invisible hand but also
> about "moral sentiments".)
>
>
>
> Also  I find a bit unusual that the attemtpt to
> link chartalist money to
> the circuit requires an illustration of a commodity
> money (corn
> --admittedly with strange properties for a
> commodity, e.g., no production
> costs, no storage costs,) .

Yes.  That is part of why the draft was written.  A
tax driven currency is shown to be functionally identical for
analytical purposes within the model to any commodity.  All have
both a vertical component, which can be leveraged
as a horizontal component.

Warren

>
> Paul
> Paul Davidson