Re: Backed money/reply to tomasson

[mike sproul <msproul@xxxxxxxx>]

Gunnar:

Without attempting anything like a full resolution of our views, I'd
start by saying:
1) The assets held on the other side of the balance sheet from the
money are not trivial. In the case of money that is convertible into
an ounce of gold on demand, the assets are the only thing that matters.
That is, if a banker has issued 100 units of money in exchange for
assets worth 100 ounces of gold, and if the money is at all times
convertible into an ounce of gold, then it must be worth an ounce
of gold. In this limited case, spending by entrepreneurs on factor
services has no effect on the money's value.

2) Convertibility can be delayed, suspended, or even uncertain, without
affecting that basic argument. I'd say that the dollar is backed by
the assets held by the Fed (gold and bonds), and I'd say that those
assets are the only thing that matters to the value of the dollar,
though I'm sure that this is where we'd part company.

Best,
Mike Sproul


> Mike:
>
> The reason for my original comment:
>
> On a quick look through your paper, it seemed to me that you are well on the
> way towards the Benthamite view of money...
>
> is this.
>
> (a)  ALL New Money comprises IOUs of the Issuer in exchange for IOUs of the
> Customer, whence it follows that ALL Money is "backed" in the trivial sense
> dictated by the logic of double-entry book-keeping.
>
> (b)  SOME New Money is also "backed" in the non-trivial sense that
> Entrepreneurial Customers use it to acquire factor services for the
> production process.
>
> (c)  The REMAINDER of New Money that is not so used remains "backed" ONLY in
> the trivial sense under (a) above.
>