Re: Is money a credit or a debt?

[William F Hummel <wfhummel@xxxxxxxxxxx>]

John Gelles wrote;
>
>"as explained in the forthcoming "credit and state theories
>of money: the contributions of a. mitchell innes" (edited by
>yours truly, edward elgar publishing, 2004, with contribu-
>tions by several gang8-ers and others), all credit is of the
>same nature. the difference is that sovereign issuers are
>able to impose tax liabilities."
>[ In other words, money is government credit. ]
>                    -- Randy today.
>
>"there is no mystery here:
>"currency (coins and frs notes) =  govt debt that doesn't
>  pay interest.
>"govt bonds (bills, 10 yr notes, 30 yr notes, etc) =   govt
>  debt that pays interest =   currency that pays interest.
>"there is no substantive difference other than interest
>  payment"  [ between money and gov't debt.]
>[ In other words  money is government debt.]
>                    -- Randy today
>
>-----------------------------------------------
>
>As I said earlier, the semantic argument over which
>categorical words,  "government credit"  or  "government
>debt"  are best used to classify "money"  is too subtle for
>most practical uses.
>
>Randy, although he sees money as both "credit" and
>"debt"  and therefore agrees with me, is also correct that
>I prefer to ignore the need for taxes in looking at money
>systems.

Not really.  Randy is saying the same thing in two different ways.  In
both quotes, the holder of government fiat money has the credit and
the government has the liability.  The reason the public holds fiat
money is because it is of value to those with tax liabilities and
because of the government's ability to enforce taxes.  Absent tax
liabilities and enforcement, there would be virtually no demand for
that money.
>
>I prefer to emphasize the power of legal tender to pay
>off legal debt -- especially debt by government to
>suppliers of weapons of war or peace that keep govern-
>ment from defeat.

Legal tender status alone is a very weak basis on which to maintain a
fiat currency.  We can't know for sure how it would work, because
there is no example of such a system in operation.

Legal tender applies only to what can be used to settle debts in a
court action.  Probably less than one percent of the population
concerns itself with that issue, and thus has no compelling reason to
hold government fiat currency.  But tax liabilities apply to almost
everyone earning an income, perhaps at least half of the population.
It is that broad-based need that makes fiat money valuable to even
those without tax liabilities.
>
>This emphasis relies a great deal, as Randy says,  on
>monetarist theory.  It seeks to replace consumers and
>private debt as the driver of a free economy with gov't
>contracts as the driver.

Most government spending is for transfer payments and for interest on
the debt.  Government contracts account for a relatively small
fraction of the GDP.  So there is a question as to whether contractors
would accept government fiat money based on its legal tender status in
a tax-free system.  A private money system might very well arise in
parallel and trade at some variable rate with government fiat money.

>To do this, there would be savings instead of taxes for
>as long as high production of basic civilian goods could
>hold price to affordable levels.
>
>When basic civilian price could no longer be held down
>to affordable levels (by automation and subsidies, etc.),
>taxes or direct adjustment of money and money balances
>would be the likely outcome.
>
Taxes are a very blunt tool to control the general price level for two
reasons.  First, tax revenues are difficult to control or anticipate
since they have different effects on different sectors of the economy.
Second, there is a lag in the measurement of prices and the
application of a new tax schedule.  Whether such a system could
operate well enough to avoid unacceptable fluctuations in prices would
require careful study.  Frankly I doubt it.

William F Hummel