Re: two currencies and Korean war

["Per Gunnar Berglund" <pgberglund@xxxxxxxxxxx>]

Hi Ted,

You wrote:
> Keynes wasn't a "chartalist" in the sense you mean.  As I've just shown
> again, he explicitly (in his summary QJE statement of the essence of his
> liquidity preference theory) derives the "desire to hold money as a store
> of wealth" from an "instinctive or conventional" "feeling about money"
> rather than from any form of "chartalism." The explanation of how "very
> strong irrational feelings" attaching to "metallic" moneys get transferred
> to "fiat" money is given in the section on "Auri Sacra Fames" in A
Treatise
> on Money (vol VI pp. 258-61).  The psychology invoked there explains why
> primitive "moneys" throw light on modern ones. It also explains the
> irrational ideas about money he associates with monetary phenomena in
India
> (something he does as early as Indian Currency and Finance).

Per says:
Well, Ted, let me at least acknowledge that you play that one string very
well! Having said that, I'm not sure if I myself know what I think Keynes
may have thought, much less in what precise sense Keynes may have been a
Chartalist. Those are History of Economic Thought matters, which I gladly
leave to the pros.

Having said that, I felt I should wipe the dust off of Keynes' Treatise and
do like you - pull a couple of quotes. So how about this one?

"Furthermore it is a peculiar characteristic of money contracts that it is
the State or community not only which enforces delivery, but also which
decides what it is that must be delivered as a lawful or customary dischrage
of a contract which has been concluded in terms of the money of account. The
State, therefore, comins in first of all as the authority of law which
enforces the payment of the thing which corresponds to the name or
description in the contract. But it comes in doubly when, in addition, it
claims the right to determine and declare *what thing* corresponds to the
name, and to vary this declaration from time to time -- when, that is to
say, it claims the right to re-edit the dictionary. This right is claimed by
all modern states and has been so claimed for some four thousand years at
least. It is when this stage in the evolution of money has been reached that
Knapp's chartalism -- the doctrine that money is peculiarly a creation of
the State -- is fully realised." [Treatise on Money, Vol. I, p. 4]

Now, this looks pretty Chartalist to me, but as usual I may have
fundamentally misunderstood everything?

If you feel uncomfortable about calling Keynes a Chartalist, fine with me.
If you want to conjure up some subcategory of Chartalists and put Keynes in
that, fine with me. I will however continue calling Keynes a Chartalist,
because I find that a reasonable description of his views.

Ted continued:
> That he couldn't have been assuming that people use money and debts
> denominated in money to store their wealth because they are chartalists is
> also shown by the fact that the history of money is said to start with
Solon
> not because chartalism begins with Solon but because Solon took advantage
of
> these "very strong irrational feelings" to use the chartalist character
(in
> Keynes's sense) of Greek money to reduce the real value of rentier wealth
by
> means of "debasement."  Why would a rational person (including Paul's
> "sensible" person) use money as a store of wealth in face of the fact that
> there is "an almost unbroken chronicle in every country which has a
history,
> back to the earliest dawn of economic record, of a progressive
deterioration
> in the real value of the successive legal tenders which have represented
> money"?

Per says:
Now you seem to me to be indulging in that habit of seeking
incompatibilities where there are none to be found. Surely the demand for
money ('the state or degree of bearishness' or 'liquidity preference') has
an irrational underpinning in Keynes' thinking. On the other hand, the
balance between bullishness and bearishness, which determines the rate of
interest according to Keynes, involves a rational, or at any rate
pseudo-rational element of equalising expected yields of various types of
capital assets with the money rate of interest.

I have made this point several times before. No matter how many quotes you
pull about the 'irrationality' streak in Keynes' thinking (something which I
find very enlightening and appreciate enormously), there will nevertheless
remain another 'rational' side to his economics. After all he viewed
economics as 'a special branch of logic'. What I feel uncomfortable with,
are the tendency to claim some ultimate insights into 'what Keynes really
meant'. Davidson, too, suffers from this. But how the heck could we know?
Keynes is dead. Most people who knew him personally are dead. I find the
quest futile. We read Keynes, get our impressions and benefit from that. We
interpret him with an open mind, allowing for possible inconsistencies and
changes of mind. That's my way of looking at it. But again, I'm no big
historian of economic thought.

Best,
Per