Re: two currencies and Korean war - Minsky's Point

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Re. the following:

> 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.

Comment:

Anyone can issue 'IOUs', including Entrepreneurs (including the State in its
Entrepreneurial functions, if any) and the State (in its non-Entrepreneurial
functions).

In the first case, the key to acceptability is for IOUs issued to Suppliers
of Factor Inputs to be redeemable in exchange for Goods and Services
supplied by Entrepreneurs - here, the Law of Contract does the "trick".

In the second case, the State's Taxing Authority does the "trick" whereby
part of the economy's output of Goods and Services is confiscated via a
two-stage process - Issue of State Money followed by collection of Taxes in
the amount of such Issue.

An alternative "trick" would be for the State to commandeer directly x % of
the economy's output of Goods and Services - in which case the Chartalist
approach to Money would be transformed into a branch of Command Economics.

Gunnar




----- Original Message -----
From: <mosler@xxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Sunday, January 13, 2002 8:27 PM
Subject: Re: two currencies and Korean war


> 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
>
>
>