Re: two currencies and Korean war

[<mosler@xxxxxxxx>]

Ted,

Starting from 'scratch' should the govt is able to
spend more than it taxes, implied is that some seller
of real goods and services to the govt chose to hold
those units of the currency rather than the stuff he sold.

Now why that seller made that choice is certainly interesting,
and it is all but universal at the macro level, as for all
practical purposes all govts with floating exchange rates
are given the option of deficit spending by their population
that for some reason has the 'desire to net save' the local
unit of account.  And note that it is the seller who is willing
to part with his real goods/services that is the driver here.

"A positive long-run demand for liquidity" is "a sensible long-run response"
to her knowledge of uncertainty i.e. to her knowledge that she does "not
know what is going to happen."

That is, willingness to have fewer real goods and services
in exchange for some units of the currency.


"If the future is transmutable and therefore uncertain even in the long run,
then, as in Keynes' analysis, money is never neutral (Keynes, 1973a, pp.
408-411). When agents recognize that they live in transmutable economic
environment, then a positive long-run demand for liquidity (that permits
agents to indefinitely defer using their earned claims on resources) is a
sensible long-run response that endows fiat money with a long-run positive
real value as a hedge against an endemically unpredictable future."
(Davidson, "Reality and Economic Theory")

Here I would question the 'tone' of such words as 'permits'
and 'endows' as the currency itself is only 'worth' what it can
buy at any point in time, and to be able to buy something
implies some agent is a seller of those real goods/services, etc.

I keep comimg back to Minsky's statement
about anyone being able to issue 'money' and the trick being
to get someone to accept it in exchange.


These interpretive claims give no role to the use of forecasting
"conventions" to "hide from ourselves how little we foresee" or to the
irrational "money-making and money-loving instincts," "the deep instincts by
which the love of money protects itself," which operate at "a deeper level
of our motivation" and are the source of the "very strong irrational
feelings," the "conventional or instinctive" "feeling about money," which
enables the "possession of actual money" to "lull disquietude."  In the
paragraph, Keynes points to this irrational "feeling" as the ultimate basis
of "our desire to hold money as a store of wealth."

And that is what allows govt to deficit spend.


  It "takes charge" when
the irrational "higher, more precarious" forecasting "conventions" by means
of which individuals "hide from themselves how little they foresee" "have
weakened."

Also, as I just pointed out in connection with what I gather is "circuitist"
analysis, Keynes claims "the quantity of hoards [does not depend] in any way
on what people are doing with their savings" and that "there is [no]
connection between idle balances and the conception (meaningless on [his]
definitions) of idle savings."

ok
The same "psychology" means, however, that there is only a "limited hope of
success" in getting people to see these "obvious matters," a claim
repeatedly confirmed by, among other things, the interpretive treatment of
Keynes's theory.

"I emphasise these obvious matters to clear our minds of the idea that the
quantity of hoards depends in any way on what people are doing with their
savings, or that there is any connection between idle balances and the
conception (meaningless on my definitions) of idle savings.  But I have
only a limited hope of success.  There is a deep-seated obsession
associating idle balances, not with the action of the banks in fixing the
supply of cash or with the attitude of the public towards the comparative
attractions of cash and other assets, but with some aspect of current
savings."  (XIV, p. 214)

> And note that there is no net desire to save Confederate $ anymore, for
> example.  The desire to save/hoard a specific currency follows (at least) the
> 'birth' of that currency.  With a floating exchange rate the tax requirement
> defines the thing/currency needed to pay the tax.
>

Here you are implicitly denying the claim made in the passage.  You are
identifying the ultimate basis of the "desire to hold money as a store of
wealth" with "the tax requirement."  Keynes identifies it with "very strong
irrational feelings" about money.

I don't think I am at odds with Keynes.  Those 'irrational feelings'
cause agents to desire that which is necessary to pay taxes as
today that's currently the thing that commands goods and services
in the market place (at least until tax authority vanishes!)

This, by the way, explains Keynes's claims that:

"the history of India at all times has provided an example of a country
impoverished by a preference for liquidity amounting to so strong a passion
that even an enormous and chronic influx of the precious metals has been
insufficient to bring down the rate of interest to a level which was
compatible with the growth of real wealth." (VII, p. 337)

Right.  Gold standard stuff.  With floating fx, the govt can
always (deficit) spend enough to satisfy the savings desire.
"it may be that in certain historic environments the possession of land has
been characterised by a high liquidity-premium in the minds of owners of
wealth ... ." (VII, p. 241)

"If by money we mean the standard of value, it is clear that it is not
necessarily the money-rate of interest which makes the trouble.  We could
not get out of our difficulties (as some have supposed) merely by decreeing
that wheat or houses shall be the standard of value instead of gold or
sterling.  For, it now appears that the same difficulties will ensue if
there continues to exist any asset of which the own-rate of interest is
reluctant to decline as output increases.  It may be, for example, that gold
will continue to fill this role in a country which has gone over to an
inconvertible paper standard." (VII, p. 229)

It also may not!

"It remains the case, therefore, that, whilst the fact of contracts and
wages being fixed in terms of money considerably enhances the significance
of the money-rate of interest, this circumstance is, nevertheless, probably
insufficient by itself to produce the observed characteristics of the
money-rate of interest." (VII, p. 237)

With fixed fx/gold standards the interest rate is endogenous.
With floating it is exogenous, and arguably should be left
at a Japan like 0.  But that's another story.

Best,

w
Ted Winslow