Re: Putting Chartalism In Its Place?

["Barkley Rosser" <rosserjb@xxxxxxx>]

William,
     Again, I agree that in modern nation state
economies money is what is all three of these
functions, and establishing that is importantly
carried out by governments both taking it as
taxes and granting it legality for the settlement
of contracts (look on a dollar bill).
     In simpler economies, and in some odd cases
even in modern economies, it is not always the
case that all of these hold.  More particularly it is
not clear that money is just "medium of exchange."
The SDR is not a medium of exchange, nor was the
euro between 1999 and 2002.  They were/are units
of account.  Indeed, if I understand it correctly, the
chartalist theory denies the importance of the medium
of exchange function, or views it as secondary.  It is
the unit of account function that is supreme, and this
is what is established by governments in receiving
taxes.  Indeed, the argument is that there may be
many different specific objects or forms that are
accepted by the government, but that they are all
evaluated according to the unit of account used by
the government, which is what is REALLY the money.
     This also takes care of my coonskin example
from the American colonies.  The British administrators
might accept coonskins in some areas, but they were
valued in pounds, which was the real money.  In Dahomey
in 1400, however, the cowries were probably the unit
that was used for valuation/accounting as well as serving
as the principal method of payment (although perhaps
other commodities were accepted, valued in cowries).
     I would also note that just because something is
used as a medium of exchange does not mean it is a
store of value.  Thus, tobacco and cigarettes have been
used as media of exchange (and tobacco was even
accepted in colonial Virginia for tax payments for awhile,
although later displaced by receipts for tobacco).  But
tobacco and cigarettes do not store very well and thus
make lousy stores of value.  The store of value function
is one that is often more separated from the other
functions.  Many things serve as stores of value because
of their durability, even if they are not media of exchange
or units of account (or usable to pay taxes), e.g. land,
although land has backed up some monies, e.g. the
French revolutionary assignat and the German rentenmark.
Barkley Rosser
----- Original Message -----
From: "William F Hummel" <wfhummel@xxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Monday, September 15, 2003 5:18 PM
Subject: Re: Putting Chartalism In Its Place?


> Barkley,
>
> I haven't seen anyone assert that paying taxes DEFINES what money is.
> In my view, money is simply whatever is widely accepted as a medium of
> exchange.  That necessarily implies it must also be a store of value,
> at least in the short run.
>
> In my view, the state theory of money applies mainly, if not
> exclusively, to any modern fiat money system serving the entire state.
> Fiat money itself is simply credit issued by the government.  The
> viability of its credit depends on the power to tax.  In effect, fiat
> money represents tax credits.  The power to tax ensures that the
> private sector will seek the government's fiat money.  Equally
> important, taxes also provide the mechanism for controlling its
> abundance, which is essential to maintaining its value in the long
> run.
>
> Fiat money comprises the monetary base on which all private sector
> credit money is leveraged.  Credit money depends for its viability on
> the promise that it can be converted at par to base money on demand.
> Except for cash used mainly in retail transactions, the private sector
> operates entirely on credit money.  Money paid to or received from the
> state is entirely fiat money.  In a hypothetical cashless system, the
> size of the monetary base would be quite small, just enough to provide
> liquidity in the payment system.  However the system could not
> function in the absence of the government's tax-based fiat money.
>
> William
>
> >     All that I have been objecting to here
> >is the scattered use by some folks on the
> >list of the idea that it is paying taxes that
> >DEFINES what money is.  I am perfectly
> >amenable to the idea that in modern fiat
> >economies, this is a very important part
> >of what money is.
> >     When I pick up an intro textbook or a
> >text on monetary theory, I never find the
> >chartalist theory put forward as the definition
> >of what money is.  One can easily lapse
> >into sneering that well these are all just
> >neoclassical mainstream garbage books.
> >But I would note that such a view is not
> >universal even among Post Keynesians,
> >not to mention many other heterodox
> >economists, much less among the
> >mainstream.
> >     Thus (and I see that he carefully
> >stays out of these discussions), I just
> >scanned over my copy of Paul Davidson's
> >Post Keynesian Macroeconomic Theory
> >(don't own Money and the Real World but
> >have read it and remember it as saying
> >similar things), and there is no mention
> >of the role of paying taxes to the state at
> >all in there regarding the definition of money.
> >Money is to settle contracts and to store
> >value for future contracts in an uncertain
> >world.  The state is cited as aiding in
> >determining what money is by legalizing
> >it for settling contracts, but not for paying
> >taxes (that is not mentioned, not denied).
> >      The standard textbooks usually list
> >three "functions of money," (medium of
> >exchange, unit of account, and store of
> >value) and then basically say that whatever
> >fulfills all of those functions is money.  This
> >seems very reasonable to me.  What is
> >involved in establishing that something
> >will fulfill those functions is another matter,
> >and having people pay taxes to the state
> >is certainly a very important part of
> >establishing that something will fulfill
> >those functions.
> >Barkley Rosser
>
>
>
>