Re: A General Framework For The Analysis Of Currencies...[Was: Re: two currencies and Korean war

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Warren:

I am inserting some comments below.

Gunnar


----- Original Message -----
From: "Warren Mosler" <mosler@xxxxxxxx>
To: "Gunnar Tómasson" <gunnar.tomasson@xxxxxxxxxxx>
Sent: Monday, January 14, 2002 7:12 PM
Subject: Re: A General Framework For The Analysis Of Currencies...[Was: Re:
two currencies and Korean war


> >
> > Comment:
> >
> > The proposition that "while modern money does not derive its value from
its
> > status as a commodity, once a token is declared necessary for the
payment of
> > taxes it can be analyzed like any other commodity" does not make sense -
the
> > fact that modern money has ZERO cost of production distinguishes it
> > fundamentally from commodities in that its supply is theoretically
infinite.
>
> Yes, but that's just math/limits.  It can theoretically be a commodity
with 0
> cost of production.  that means in a competitive situation the value would
> be 0.  But in the case of a single supplier there can be a positive value
if the
>
> single supplier 'restricts' output.  the paper goes into that.

*****
By definition, "a commodity with 0 cost of production" - Sunshine etc. - is
a "free good" to which economic reasoning does NOT apply.
*****

>
> >
> >
> >           Analyses of the circuit that begin with banks financing firms'
> > production (or households'
> >           purchases) and end with firms (or households) paying back
their
> > loans leave
> >           unanswered the question of why anyone would initially sell
real
> > goods or services for the
> >           unit of account. The "common-sense" reply, "because they can
use
> > the funds to buy
> >           other goods and services" is not a satisfying one, for the
further
> > 'infinite regress'
> >           question remains the same: "why do those sellers want the unit
of
> > account?" What is
> >           missing is the process by which the unit of account is endowed
> > with value.
> >
> > Comment:
> >
> > The 'circuit' - or the "process by which the unit of account is endowed
with
> > value" - begins with Entrepreneurs issuing their IOUs to Banks in
exchange
> > for Modern Money which they hand over to Suppliers of Factor Inputs for
whom
> > such Money represents Purchasing Power - the 'value' of intrinsically
> > worthless IOUs - in the market for Goods and Services.
>
> You are missing my point and/or falling into the 'infinite regression'
argument
> that even
> 'mainstream' recognizes as not valid.  The question is, why would an imput
> supplier exchange his real
> goods and services for units of the currency?  If the answer is because he
can
> further exchange
> them with someone else, etc, infinitum, that is no answer.

*****
There are two sides to missing points!

As for the "mainstream" approach to monetary theory, Goodhart spoke thereof
when he suggested that the current state of monetary theory was "less
satisfactory" than that to which Keynes and Robertson had advanced it by the
early 1930s.

And "why would an INPUT supplier exchange his..." - this is where you miss
my point, namely, that an INPUT supplier has NO "goods and services" to
offer in exchange "for units of the currency".  All he has is Factor
Services which, if he can find entrepreneurs willing to acquire them, permit
him to translate Factor Services into CLAIMS on Goods and Services.

*****

> >
> >           This paper takes the position that the question remains
unanswered
> > because it cannot
> >           be (adequately) answered unless the State is incorporated from
the
> > very beginning of
> >           the analysis. "Money is a Creature of the State" (Lerner), and
> > thus a "monetary" analysis
> >           cannot be conducted prior to the introduction of the State.
> > Interestingly, the Chartalist
> >           view of a tax driven currency can be found in the writings of
> > Keynes (not to mention
> >           Adam Smith!), the Post Keynesians, and the Circulation
theorists,
> > yet it is almost always
> >           presented as an aside, with the implications remaining
unexplored
> > (see Wray, 1998, on
> >           Smith, Keynes, and Post Keynesians such as Minsky; for the
> > Circulationists, see
> >           Graziani, 1988).
> >
> > Comment:
> >
> > It is within the framework of the Law of Contract - a "Creature of the
> > State" - that intrinsically worthless IOUs acquire 'value' in the form
of
> > Purchasing Power through exchanges between Economic Agents which may or
may
> > not include the State.
>
> The law of contract has nothing to do with value, though enforceable law
is
> probably fundamental in anycase.  all that states is that debts must be
repaid,
> etc.

*****

"The law of contract has nothing to do with value"?

Absent the Law of Contract, what is the "value" of any intrinsically
worthless IOU?

*****
>
> >
> >
> >           In the Chartalist view, the State, desirous of moving various
> > goods and services from the
> >           private sector to the public domain, first levies a tax. The
State
> > currency unit is defined
> >           as that which is acceptable for the payment of taxes. The
> > imperative to pay taxes thus
> >           becomes the force driving the monetary circuit. The present
paper
> > seeks to refine the
> >           concept of the monetary circuit using a multidimensional model
> > designed to reveal and
> >           illuminate the workings of a tax- driven currency. It will
also be
> > shown that this same
> >           model lends itself to the analysis of any commodity. In an
> > adaptation of Moore's (1988)
> >           terminology, the model includes "horizontal" and "vertical"
> > components of the monetary
> >           circuit. Following outline and discussion of the model, it
will be
> > utilized to dispel the myth
> >           that deficits imply future taxation, as well as to briefly
analyze
> > the 1997 Asian Financial
> >           Crisis.
> >
> > Comments:
> >
> > The proposition that "the State, desirous of moving various goods and
> > services from the private sector to the public domain, first levies a
tax"
> > is analytically vague - the tax IS such goods and services,
>
> It could be.  the state could tax that stuff directly.  but it generally
> doesn't,
> but takes the more circuitist (no pun intended) route described above.

*****

And IF the state did "tax that stuff directly", THEN - by Chartalist
reasoning - the state would remove the very foundations of the Monetary
System.

Does this make sense to you?

Gunnar

> with associated
>
> > State Money aspects reducing to accounting procedures whereby the State
> > chooses to collect the tax.
> >
>
> as the textbooks say, the 'real tax' is collected when the govt spends.
>
> w
>
> >
> > Gunnar
> >
> > ----- Original Message -----
> > From: "Warren Mosler" <mosler@xxxxxxxx>
> > To: <pkt@xxxxxxxxxxxxxxxx>
> > Sent: Monday, January 14, 2002 3:02 PM
> > Subject: Re: two currencies and Korean war
> >
> > > An income tax alone won't 'drive the model'
> > > see 'A general framework for the analysis of currencies and other
> > > commodities'
> > > www.mosler.org
> > >
> > >
> > >
> > ----- Original Message -----
> > From: "Warren Mosler" <mosler@xxxxxxxx>
> > To: <pkt@xxxxxxxxxxxxxxxx>
> > Sent: Monday, January 14, 2002 3:02 PM
> > Subject: Re: two currencies and Korean war
> >
> > > An income tax alone won't 'drive the model'
> > > see 'A general framework for the analysis of currencies and other
> > > commodities'
> > > www.mosler.org
> > >
> > >
> > >
>
>