Re: two currencies and Korean war

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

In reply to Ted Winslow and David Gleicher:

Ted had written:
> >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.

David added in:
> This statement of Ted's is inarguably correct, and I think gets to what
has
> made the chartalist position  so confusing to me, at least.

Per says:
Since this is 'inarguably' correct according to you, you might want to
explain you how else - if not by borrowing from the central bank, that is -
the government would fund its deficit? (Recall the issuance of debt
instruments to the public was ruled out by assumption.)

Ted is correct, though, in saying that there is no necessary relation
between the government deficit and the change in the monetary base. It is a
matter of course that the base can be changed also by open-market
operations.

David wrote:
> Credit money
> is issued by a central bank through its lending to the public (purchases
of
> financial instruments and so forth), so that there is nothing on the face
> of it that I can see that privileges tax payments as a basis of the
> currency.  One might more convincingly say it is the willingness of the
> public to borrow and accept  payment in the form of such bank credit that
> legitimizes the currency.

Per says:
While all this is true, it begs the question what it is that makes the
public willing to borrow and accept payments in said credit? That is the
crucial point so far as I am concerned. Recall Minsky's dictum that anybody
can issue IOUs - the difficult thing is to get them accepted. If we define
'money' in terms of its general acceptability, then the formulation of a
relevant theory of money would seem to call for some explanation of the
'mechanisms' that bring about general acceptability.

David wrote:
> I believe it was Henry Liu who at some point stated that chartalism as it
> is expressed on this list anyway is really the advocacy of a policy rather
> than being a coherent theoretical position about money and the existing
> monetary system.

Per says:
Well, as I have repeatedly said, I don't think Chartalist theory of money
should be taken to support a political platform. William Hummel made the
same point, too. This is where I feel uncomfortable with Abba Lerner's
ideas.

David wrote:
> The chartalists seem to wish to eliminate central banks
> and to unify in the Federal govenmnet the roles of budget-making and
> creation of money.

Per says:
Practically everywhere, the central bank forms part, de jure or de facto, of
the central state. Whether one would want to consolidate the Treasury and
the Central Bank is a matter that involves many considerations, but not that
of the 'nature' of money.

David wrote:
> Hence Per, even though he knows better, makes the slip
> of claiming that if there were no taxes government spending would cause
> huge increases in the money supply;   i.e., all government spending is
> viewed as what is commonly known as 'monetizing the debt.'   This is not
> the case because, as Ted points out, the government can borrow existing
> cenrtral bank credit from the public.

Per says:
Well since you apparently know even better than I do, you might answer the
question I posed above.

I'll leave the rest without comment.

Per

_____________________________________________
Per Gunnar Berglund
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