Re: Uncertainty and Liquidity Preference

[Paul Davidson <pdavidson@xxxxxxx>]

Oh! Oh! Here we go again !!  Seems that no one ever reads or remembers what
was discussed on the pktnet several months ago when we were discussing the
Mosler-Wray concept of chartalist money -- No wonder Randy withdrew from
the list.

Here comes William Ryan dragging up the old chestnut:
>
>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.

>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.
>


 What is bugging Ryan is that checks are not designated "legal tender" but
merely are IOUS of privately owned depository institutions.

The important point about contractrs is ENFORCEABILITY or as Keynes wrote
"it is a peculiar characteristic of money contracts that it is the State or
the Community not only which enforces delivery, but also which decides what
it is that must be delivered as a lawful or customary discharge of a
contract."

Thus legal tender is money but so are checkable deposits because they are
written by institutions chartered by the State and regulated by the State
and where the State GUARANTEES that as long as there are sufficient funds
deposited in the payer's account,  the transfer of title to these funds via
a site draft (check) from payer to payee's account can be converted
immediately into legal tender AT THE OPTION OF THE HOLDER. Thus IOUs of
"depository institutions" are money for they are just as good as legal
tender as the State guarantees. it  But IOU's of IBM or Amazon.com or
William B. Ryan  or even William Gates are NOT money and cannot be used in
a court of law to discharge a LEGAL contractual commitment.

Now individuals can make agreements among themselves to exchange anything
for anything else -- and as long as they do not go to court for enforcement
 the State does not care what the agreement is about (unless it violates
some criminal code).

The prime example of this occurred after the US went off the gold standard.
 Until then contract could be paid in currency or in gold.  The dollar was
defined in units of gold.

Some contracts were made before the US went off the gold standard that
called for payment after the US went off the gold standard Since after
going off the gold standard, the US devalued the dollar in terms of gold,
it would be profitable for sellers to request of the pre-off the gold
standard contract payment in the original units of gold written into the
contract.  But Congress had passed the gold abrogation clause preventing
any contract written before the US went off the gold standard to be
enforced in terms of units of gold.  The Supreme court held that the gold
abrogation clause was constitutional and that enforcement could only be in
dollars.  Now that is CHARTALISM .

All of this William could have known had he read my POST KEYNESIAN
MACROECONOMIC THEORY> If only some people would use PKIMT as a textbook,
perhaps in time we could educate economists so that did not waste time on
these old arguments.

>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.
>
This is exactly the point, the State has decied that checking account
deposits (but not CDs for example) are money..  As Keynes noted chartlalist
money came about when the State "claimed the rght not only to enforce the
dictionary but also to write the dictionary".

(Note that the Euro can be used to settle contracts in Euroland.)

>"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.
>
>It is the essence of free enterprise.


Again the parties to a contract can agree on anything they want but if one
party demands enforcement then the State will always enforce in terms of
money.  AS I have written several times on this net, if I have an
employment contract to teach courses at the University and if I quit in the
middle of the term to take a better job elsewhere, the University can sue
me -- but since slavery is illegal they can not force me to fulfill my
contractual commitment to appear in front of students and teach.  They can
only go to court and ask the court to enforce the contract.

If the court does, the court will enforce the contract by requiring me to
pay MONEY (not labor time) to the university to discharge my contractual
obligation ieven though I agreed to the contract n terms of labor time.
The amout of money that the court requires me to pay will depend on the
University proving damages for my refusal to honor my labor time
contractual commitment.

Now THAT IS THE ESSENCE OF LAWFUL FREE ENTERPRISE!!

Paul
Paul Davidson
Holly Chair of Excellence in Political Economy
Economics Department -- 523 SMC
University of Tennessee
Knoxville, Tennesseee 37996-0550
email: Pdavidson@xxxxxxx;
phone: (423)974-4221;    fax: (423) 974-1686
http://econ.bus.utk.edu/Davidson.html