Re: Uncertainty and Liquidity Preference

[chip poirot <csp@xxxxxxx>]

"William B. Ryan" wrote:

> Contracts calling specifically for monetary payments are frequently
> settled by the tendering of checks or other devolved forms of credit
> arrangements not strictly defined as money.

Huh? You have lost me here. Isn't this credit for a specified amount
denominated in units of the official currency? Aren't checkable deposits
conventionally part of M1?

>
>
> The fact that some forms of money may be declared by the government to
> be legal tender does not make money fundamentally a "chartalist" or
> "cartalist" institution.
>
> The legal tender law states that if a creditor refuses to accept legal
> tender in payment of a debt, the debt is cancelled.  The law does not
> require the creditor to accept only legal tender.  He may accept
> anything whatever that is mutually agreed between the parties.
>
> The Internal Revenue Service itself greatly discourages the payment
> of taxes with legal tender.  Checks are more convenient for the taxman
> and the taxpayer.

When you write your check in April to the IRS, what is it denominated in?
Don't you have to have deposited a sufficient amount of legal tender in
your account to cover the check?

>
>
> Even where there has been a judgement entered by a court of law
> mandating a monetary payment, most such judgements are eventually
> settled by the payment of something other than legal tender, if
> monetary payment is made at all.
>
> "Thus," in any economy in which the law of contracts "is important,"
> where the parties themselves are free to determine the terms of their
> own contracts--is an economy in which the parties themselves determine
> the means of settlement.

That is why these forms of payment evolve as a means of reducing
transactions costs. Of course, people could settle contracts in tons of
steel, automobiles, etc. as they do in Russia presently due to the absence
of liquidity and institutions that facilitate payment. Of course,
transactions costs and the costs of enforcing contracts in Russia right
now are so high, that a significant amount of contracting does not occur.

>
>
> It is the essence of free enterprise.

Yes but even freely contracting agents have to devise institutional
arrangements to make contracts enforceable and to reduce uncertainty.