Re: Price vs. Value Theory

["Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>]

Warren:

I am inserting (blunt) comments below to introductory paragraphs in your
paper:

Both Post Keynesian and Circulation Approaches accept the widely held view
that modern money is not commodity money but rather token (or fiat) money
(see, e.g., Moore, 1988; Graziani, 1988). But they criticize conventional
theory for continuing to utilize a framework that treats modern money as
though it were still a commodity money. This paper begins with two comments
on this fundamental point. First, while modern money does not derive its
value from its status as a commodity, once a token is declared necessary for
the payment of taxes it can be analyzed like any other commodity. Second,
absent from most Post Keynesian and Circuit analyses is the institutional
process by which a token obtains its value (becomes money). Many analyses
"add in" government spending and taxation, and the central bank, after an
initial investigation of the operation of a private money-using economy
(see, e.g., Lavoie, 1992, pp. 151-69).
Comment:

There is NO substantive difference between the Conventional and Chartalist
approaches - for, given their common modus operandi, namely, analyzing money
"like any other commodity", it is a matter of indifference WHY advocates of
the two approaches have made common cause insofar as the methodology of
their monetary analysis is concerned.

*******

Analyses of the circuit that begin with banks financing firms' production
(or households' purchases) and end with firms (or households) paying back
their loans leave unanswered the question of why anyone would initially sell
real goods or services for the unit of account. The "common-sense" reply,
"because they can use the funds to buy other goods and services" is not a
satisfying one, for the further 'infinite regress' question remains the
same: "why do those sellers want the unit of account?" What is missing is
the process by which the unit of account is endowed with value.

Comment:

This argument mixes analytical apples and empirical oranges and, as such, it
mirrors Keynes' make-belief in the General Theory that classical economists
of first rank EVER viewed Say's Law as an empirical as distinct from
analytical proposition.

The fact that some/many/most? Post-Keynesians do NOT recognize/acknowledge
the distinction between the two - a distinction akin to that between
analytic and applied geometry - does not render it immaterial.

Nor does it accord with Keynes' modus operandi in parts of the General
Theory, as indicated in recent exchanges between Harry Weeder and myself on
Paul Samuelson's 1939 paper on 'The Rate of Interest Under IDEAL
Conditions'.

*******

This paper takes the position that the question remains unanswered because
it cannot be (adequately) answered unless the State is incorporated from the
very beginning of the analysis. "Money is a Creature of the State" (Lerner),
and thus a "monetary" analysis cannot be conducted prior to the introduction
of the State. Interestingly, the Chartalist view of a tax driven currency
can be found in the writings of Keynes (not to mention Adam Smith!), the
Post Keynesians, and the Circulation theorists, yet it is almost always
presented as an aside, with the implications remaining unexplored (see Wray,
1998, on Smith, Keynes, and Post Keynesians such as Minsky; for the
Circulationists, see Graziani, 1988).

Comment:

In the context of ANALYTICAL monetary economics of the kind engaged in by
Keynes in parts of the General Theory and Samuelson in his 1939 paper, the
question makes NO sense in the first place.

*******

In the Chartalist view, the State, desirous of moving various goods and
services from the private sector to the public domain, first levies a tax.
The State currency unit is defined as that which is acceptable for the
payment of taxes. The imperative to pay taxes thus becomes the force driving
the monetary circuit. The present paper seeks to refine the concept of the
monetary circuit using a multidimensional model designed to reveal and
illuminate the workings of a tax- driven currency. It will also be shown
that this same model lends itself to the analysis of any commodity. In an
adaptation of Moore's (1988) terminology, the model includes "horizontal"
and "vertical" components of the monetary circuit. Following outline and
discussion of the model, it will be utilized to dispel the myth that
deficits imply future taxation, as well as to briefly analyze the 1997 Asian
Financial Crisis.

Comment:

Here one can stand the "infinite regress" argument on its head - for ABSENT
a pre-existing "circuit" whereby Owner/Suppliers of Factor Services and
Entrepreneurs transform Factor Inputs into Final Output within some
appropriate Creditary/Monetary framework, there cannot exist ANY "goods and
services" for the State to "move from the private sector to the public
domain" through taxation.

Why, then, do some economic scholars subscribe to the Chartalist View of
Money?

It attempts to RATIONALIZE the IRRATIONAL notion that Money which possesses
NO commodity value can still be treated AS IF it possessed such value - a
rationalization which permits such scholars to practice make-believe
monetary 'analysis'.

Gunnar




----- Original Message -----
From: "Warren Mosler" <mosler@xxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Tuesday, March 25, 2003 9:22 PM
Subject: Re: Price vs. Value Theory


> The $US, for example, is a public monopoly.
> The govt. (or its designated agents) as sole supplier
> of that which it demands
> for payment of taxes it levies is 'price setter.'
>
> see 'A General Framework for the Analysis of
> Currencies and Other Commodities at www.mosler.org
>
> Warren Mosler
>
> --- Gunnar Tomasson <gunnar.tomasson@xxxxxxxxxxx>
> wrote:
> >
> > The following Gang8 exchange of today's date may be
> > of interest.
> >
> > Gunnar
> >
> > ********
> >
> > Geoffrey Gardiner:
> >
> > The value of dollars and the value of gold are both
> > concepts of the human mind. They have no reality in
> > nature.
> >
> > Gunnar:
> >
> > Economic Scholars will respond to - "refute" in
> > their vocabulary - your point as follows:
> >
> > People would not hoard Dollars/Gold at Fort Knox
> > UNLESS it gave them PSYCHOLOGICAL satisfaction to do
> > so.
> >
> > As Economic Scholars, we have no business belittling
> > the psychological quirks that make people do what
> > they do.
> >
> > By their own lights, such Economic Scholars are not
> > being dumb - their viewpoint is an integral part of
> > the Price-Theoretic approach developed by
> > mathematical economists in the last third of the
> > nineteenth century as substitute for that of
> > Classical Value Theory.
> >
> >
>
>
> =====
> http://www.mosler.org
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>
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>
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