PKT message, Re: [gang8] Re: two currencies and Korean war

Henry:

Brief comments on your points.

1. The State Theory of Money assserts that the fundamental function of taxation is to create on the part of the public a financial obligation to the state through the levying of taxes which is payiable with the currency issued by the state.

Agree.

2. Taxes are what give currency value.

Money (IOUs), whether State or non-State, has no intrinsic value - in either case, economic agents will accept such Money in exchange for something of value (factor services or final output) because State or non-State issuers of Money (IOUs) stand ready to accept their own IOUs in exchange for Taxes or Final Output.

Thus, Taxes and Final Output are what give Money (IOUs) value.

3. The fact that the state spends tax revenue is merely to recycle the money supply.

In principle, acceptance by State or non-State issuers of Money (IOUs) in exchange for Taxes or Final Output represents the quid pro quo whereby such Money (IOUs) was accepted by economic agents in the first place - tax receipts reduce by an equal amount total State Debt outstanding.

And, while both State and non-State issuers of Money (IOUs) routinely engage in new transactions, there is no question of either party 'spending tax revenue' or 'spending sales proceeds' as distinct from issuing new Money (IOUs) for such further transactions.

4. Thus taxation is very much part of monetary theory.

State taxation by monetary means is a two-stage affair - the real transfer of resources to the State is effected when non-State economic agents accept State Money (IOUs) in exchange for such resources. The second stage, at which the State collects its own IOUs through 'taxation' restores the status quo ante.

The fact that the State chooses to effect such real transfer of resources by issuing Money has monetary implications but is not on that account 'part of monetary theory'.

5. A government that has no tax revenue (or insufficient) would have to support its currency through other means, such as a gold standard.

Agree.

6. This is where Reagan missed the point when he compared government with a corporation. Corporation have no authority to impose taxes, although many try through monopolies.

In principle, the only distinction between State and non-State issuers of Money (IOUs) is that the former need not redeem its Money in terms of something of real as distinct from contrived value - in real goods and services as distinct from taxes.

Gunnar

----- Original Message -----

From: Henry C.K. Liu

To: gang8@xxxxxxxxxxxxxxx

Cc: pkt@xxxxxxxxxxxxxxxx ; pdavidso ; Alan G. Isaac

Sent: Monday, December 31, 2001 2:16 PM

Subject: Re: [gang8] Re: two currencies and Korean war

Gunnar Tómasson wrote:
In other words, the 'taxation' aspect enables the State to take fiscal action by monetary means - it has nothing to do with monetary theory as such.

Gunnar,
The State Theory of Money assserts that the fundamental function of taxation is to create on the part of the public a financial obligation to the state through the levying of taxes which is payiable with the currency issued by the state. Taxes are what give currency value. The fact that the state spends tax revenue is merely to recycle the money supply. Thus taxation is very much part of monetary theory. A government that has no tax revenue (or insufficient) would have to support its currency through other means, such as a gold standard. This is where Reagan missed the point when he compared government with a corporation. Corporation have no authority to impose taxes, although many try through monopolies.
Henry