Re: [gang8] Re: Putting Chartalism In Its Place?

[William F Hummel <wfhummel@xxxxxxxxxxx>]

Gunnar wrote:

>All time-consuming production of goods and services is predicated on
>Credit - in one form or another.
>
>That is to say, Credit - "money" - precedes, and is pre-condition, for
>Government Taxation. -
>
>concerns "Credit - in one form or another."
>
Credit is not necessarily "money," the relevant subject in discussing
chartalism or the state theory of money.

If credit is to qualify as money, it must be negotiable.  That is, it
must be widely accepted as a medium of exchange.  Its negotiability
may be limited to a local region and supported by mutual consent. like
Ithaca Hours.  To be negotiable on a national scale, however, requires
the intervention of the government.  Credit can serve as money on a
national scale only after the government has established a monetary
base.  Such credit is denominated in base money and depends on the
assumption that it can be converted at par into base money.

The state theory of money explains how the government creates and
supports the monetary base.  Some argue that the State can do that by
simply declaring its base money to be legal tender.  That is a
necessary, but not sufficient condition.  There must also be a broad
need for the private sector to acquire base money, as well as a way to
control its abundance.  Both are accomplished through compulsory tax
collection.

Taxes obviously create a need for the private sector to acquire base
money.  On balance, the private sector can only do that by delivering
goods or services to the State.  Taxes are essential in managing the
abundance of base money.  Taxes, together with the issuance of
interest-bearing debt, allow the government to recapture the base
money it has spent.  That enables the central bank to add or drain
base money as needed to influence short term interest rates, and
thereby the amount of credit money demanded.

William F Hummel