Re: Uncertainty and Liquidity Preference

["William B. Ryan" <william_b_ryan@xxxxxxxxxxx>]

Paul Davidson writes:
http://csf.colorado.edu/forums/pkt/spring99/msg01343.html

"The important point about contracts is ENFORCEABILITY..."

In the entrepreneurial economy, contracts are contracts only to the
extent they do not have to be enforced.  To the extent that contracts
must be enforced, the economy is not entrepreneurial.

Davidson quotes Keynes: "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."

Delivery is assured more through community sanctions than court
judgements.  The key element is trust, the basis of credit.  The
person who loses the trust of his neighbors will have little chance
to do future business with them.  The government may arbitrarily
mandate what is "lawful" but most certainly does not determine what is
"customary."

Davidson: "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 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..."

Checking deposits are certainly money but not for the reasons
Professor Davidson states.  Checks are money because they are
"customarily" accepted in trade and commerce, not because they can be
converted into government currency.  Convertibility into currency is
an aspect of the private contract between the banker and his depositor
that enhances but is definitely not essential to the acceptability of
the depositor's checks.  Currency is really nothing more than an
historical artifact that could be dispensed with.  It could be
eliminated entirely and the economy would function very much like it
does now.

Davidson: "The State has decided that checking account deposits (but
not CDs for example) are money.  As Keynes noted, chartalist money
came about when the State 'claimed the right not only to enforce the
dictionary but also to write the dictionary.'"

Whatever government might think it "decided," bank credit did not
instantly become money because government issued some "charter."  It
became money endogenously through transactions in commerce and trade.
Writing the dictionary is a useful endeavor only to the extent that
the definitions conform to existing reality.  Pi may be "defined" as
something other than pi but that does not make that something other
pi.  Nor did pi become pi when someone discovered it and decreed it
was "legal."  It was already pi.

Davidson: "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 slavey is illegal
they can not force me to fulfill my contractual commitment to appear
in front in front of students and teach.  The can only go to court
and ask the court to enforce the contract [in terms of money]."

Though Professor Davidson has indeed made this assertion several times
previously, it is incorrect as a matter of law.  Not just the
University but Davidson's students would potentially have a cause
of action.  His students against the University.  And the University
not only against Davidson for breach of contract but against his new
employer for interfering with his present contract.  In such
situations courts can and often have granted injunctive relief
compelling performance.  The case books are replete with relevant
examples.

Bill Ryan
http://www.geocities.com/CapitolHill/Senate/7018
william_b_ryan@xxxxxxxxxxx
Fax: 815-846-8794



_______________________________________________________________
Get Free Email and Do More On The Web. Visit http://www.msn.com