Re: Keynesian State of the Union

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx> =====
>Bill Mitchell wrote:
>
>>
>> every dollar the government spends provides the essence for the
>> non-govt sector
>> to pay its taxes not the other way round.
>
>Exactly.  Moreover, if government does not spend, the system will have
>no money.  PRivate money cannot exist without the enforcement of
>contract law, which means it ultimately is backed by government money.
>

It is the enforcement of contract law that is important.  The fact that the
bank money (i.e., private liabilities of persons known as depository
instituions) is acceptable in courts of law for the discharge of contracts
makes this form of private money (which far exceeds the amount of currency the
Federal Reserve issues) just as much money as government Federal Reserve
Notes!


This iis the Chartalist position of Keynes in the Treatise on Money and is
slightly different than the chartalist argument put forth by some PKERS and
contributors to thi list.
>>
>>
>> We have to break this notion that government spending needs to be
>> financed.
>
Financed yes-- the question is of funding if deficits are incurred for it is
the funding process that provides financial assets for the private sector to
hold in stead of money directly.


>When a government issues currency and circulates money through the
>banking system, it is in essence issuing credit to the economy that it
>is entitled to receive back in taxes. Government then spends the tax
>money on goods and services that the public provides. The surplus money
>that is not returned by taxes is government credit floating around the
>economy to keep it operating financially.
>
>It is important to understand that money issued by the government,
>unlike private money, is not IOUs from the issuer. Money, when issued by
>government as a legal tender, is a credit from the government good for
>the payment of taxes, and for settling "all debts, public and private",
>as printed plainly on all Federal Reserve notes. A US dollar is a
>Federal Reserve note that entitles its holder to exchange it at any of
>the six Federal Reserve Banks for another Federal Reserve note of the
>same face value,

nO THERE ARE TWELVE fEDERAL rESERVE bANKS

no more and no less, at least since 1971 when the late
>president Richard Nixon took the dollar off the gold standard.


>
>Even before 1971, while an ounce of gold was officially pegged at $35 by
>president Franklin Roosevelt on January 31, 1931, a domestic holder of a
>dollar note could only exchange it at a Federal Reserve Bank for another
>dollar note, since US citizens were forbidden by law to own gold. Only
>foreigners could demand gold for dollar up to 1971.

For US residents -- the Federal Reserve Notes were payable into other Federal
Reserve notes since Roosevelt!  Although there were still silver certificates
--convertinle into siilver-- issued by the US Treasury outstanding until , I
think, the 1960s or 1970s.

paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
phone # (561)369-1951; fax #(561)369-1951;
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html