Re: two currencies and Korean war

[Ted Winslow <egwinslow@xxxxxxxxxx>]

Per wrote:

> The financial deficit is the excess of government spending over taxes and
> other fees. If no taxes were collected, then the whole of government
> spending would directly increase the monetary base. There are two ways of
> limiting its increase (besides cutting back on spending): the levying of
> taxes and other fees, and the sales of government debt instruments. What I
> had in mind when I said that the second of these methods is of limited
> importance, I meant that quantitatively speaking, taxes and fees are usually
> much greater than the net sales of debt instruments.
>
> I would have thought all this to be fairly straightforward and standard
> doctrine, as presented in any textbook on the subject.

Taxes are much larger than government borrowing to avoid or minimize
deficits (which are considered a very bad thing).  What does it have to do
with limiting the growth of the monetary base?  Central bank purchases and
sales of government debt can be used to change the base but this has no
necessary relation to the deficit or to taxes, does it?  Collecting no taxes
would leave the monetary base unchanged if no part of the spending was
financed by borrowing from the central bank.

> Consumers'
> revenues from sales of services to producers amounts to the wage bill W.
> Therefore the balance between the two W - C will denote the net increase in
> producers' financial liabilities, the change by transaction in 'MC'.

All of Y, i.e. profits, rent, interest and wages, is the income of
households, isn't it? Their saving is Y - C.  This must be equal in a simple
system to I (investment by firms) all of which, on your assumptions, is
financed by a "net increase in producers' financial liabilities" to
households.  So Y - C equals this  net increase.  How could they be
different unless Y wasn't equal to C + I?  If the net increase is only W - C
what happens to Y - W i.e. non-wage household income?

Ted