Re: two currencies and Korean war

["John O'Donnell" <jackodonnell@xxxxxxxx>]

David Gleicher wrote:
>
> Message text written by INTERNET:pkt@xxxxxxxxxxxxxxxx
> >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. <
>
> 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.

Not inarguably so and not even correct. The only reason
purchases by the US CB may appear to not affect the deficit
is the silly proposition that the CB is not a government
institution. Its independence from executive and legislative
direction does not change the reality that its purchases of
government debt reduces the deficit and/or outstanding debt.
The confusion lies in (1) the practice of accounting fed
held debt as if it were not owned by the government and (2)
the labeling of member bank deposits at the CB as "stock"
instead of "bonds" as is appropriate for devices with a 6%
fixed return. The equity and associated earnings of the fed
belong to the government!

> 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.

The distinction is that payment of taxes and other
government directed obligations establishes the fact that
the CB issue has value. The amount of that value, as defined
by the market purchases it can accomplish, is determined by
not only the amount of taxes and other payments made legally
binding but also all the other uses to which the issue is
placed -- such as its use for market transactions, stuffing
mattresses, etc.

> 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.  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.

"Chartalism" as such seems to me only a descriptive term
that identifies an existing practice, not a policy to be
advocated for any purpose other than eliminating the need of
backing with substance, even if a standard of value is
established in reference to a substance or group of
substances. As an aside, I personally would prefer to
eliminate the superfluous CB ministrations and implement a
meaningful standard of value with monetary policy directed
to maintain the value of the currency by manipulating the
quantity available [Including the prominent substitute, bank
credit, usually included in measures of money supply.] and
not the quantity of the standard.

<<SNIP>>

--
			-- jbod

		Tax Privilege, Not People
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