Re: two currencies and Korean war

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Per Gunnar Berglund wrote:

> I regard this whole issue about Chartalism, expectations, legal tender laws,
> etc., etc., as something of a tempest in a teapot. The reason behind the
> storm, it seems to me, is that some people entertaining Chartalist notions
> have come to believe that just because money is a 'creature of the State',
> to quote Abba Lerner, ordinary laws of economics will somehow be
> neutralised. People like Charles Goodhart and our own William Hummel provide
> excellent counter-examples to this: they are Chartalists but do not
> necessarily embrace the rather far-fetched policy 'implications' suggested
> by some.
>
> Moreover, a lot remains to be said about the definition of money, how it
> enters into the economic system, and how it impacts economic variables such
> as the price level and the volume of employment and output. It is
> unfortunate that the Chartalists, at any rate those that I have read, have
> had rather little to contribute to that important discussion. Some of these
> people clearly talk like 'currency cranks'. They believe themselves to have
> discovered some deep truth, which supersedes all other insights in
> economics, and suspends all the usual constraints and trade-offs with which
> we are used to dealing. While I am open to suggestions, and like taking in
> all kinds of ideas, there are limits to how much sympathy one can hold for a
> line of argumentation that is so obviously stagnant and barren, shackled by
> the almost fundamentalist overbelief in dogmas that upon closer scrutiny
> turns out not to hold water. The whole thing gets tedious and even
> embarrassing.

The Chartalist approach is of significant at this particular time in history
becuase of the total dependance of global trade on fiat currencies.
Globalization has eleveated the importance of trade above its previous status.
Trade issues now dominates domestic monetary and fiscal policies of all
nations.  The global foreign exchange market now drives central bank interest
rate policies and cuurency valuations.  Argentina, along with recurring
financial crisis in Mexcio, Asia, Brazil, Russia and Turkey in the last decade
highlights this point.  The currency board, though still arguable whether it was
directly responsible for Argentina's financial and economic problems, undeniably
reduced the flexibility of the government to call on all options to deal with
the situation of recession, unemployment and deficits.

Money takes on top importance in finance capitalism diiferent from itys role of
units of eschange in industrial capitalism.  And whether the Chartalist approach
to money is theoretically more valid than other approaches is now only of
academic concern, because all governments now practise it and the entire foreign
exchange market operate on it.  Money is the creature of the State over which
the State has a monopoly od issuance. Taxes drive money in that the public need
mony to pay taxes.  The government does nopt need the publics money to spend.
The conservative tiresome whinning on taxes being the people's money is based on
a fundamental misunderstanding. The government can buy anything money can buy
merely by providing the money.  The function of a government deficit is to make
up for the penchant of the public to hold extra money.  The purpose of
government bonds is not to finance the deficit, but to provide interest bearing
money to the use of the economy.  Thus the Chartalist appraoch leads to monetary
and fiscal policy alternatives, such as full employment, the elimination of
overcapacity through demand management, not opened to other, particularly
monetarists views of money. Such policy alternatives are of particular
importance in this era of globlaized finance capitalism to moderate its
structural contradictions.

Henry C.K. Liu

BTW, the Koren currency is called won, not yuan.