Re: Putting Chartalism In Its Place?

["Esteban Perez" <eperez@xxxxxxxxxxxx>]

"Matias Vernengo" <matias.vernengo@xxxxxxxxxxxxxxxxxx>  9/15  6:09p wrote:

Neoclassicals in fact define what money
does in technical terms (i.e. technical characteristics that allow it to perform its three
traditional functions).  In that sense, the State has no role in determining the
acceptance of money, by imposing taxes or any other method.
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I am not so sure.
NC theory in its neo-walrasian variant has a hard time explaining the existence of money (or the funtion of money as a means of exchange) that is not commodity money without resorting to the government (or the backing of money by an institution that can enforce the payment of taxes).
In a finite horizon the price of money is equal to 0. Two solutions have been proposed. The first corresponding to Arrow and Hahn is to asume that money has a utility which is independent of its exchange value. Money is something more than a media of exchange. The second solution was proposed by Starr: ´money is accepted because the government accepts it´ and also found in Gale (1982) applied to a specific context, trustworthiness in a coopeartive approach to money. Gale writes:

´First, it is not the invention of paper money  which restores trustworthiness. The Walras allocations are trustworthy in the monetary economy only becuase there is in the background, a government which can enforce..the payment of taxes.....´ And

´the monetary arrangement described in the theory works because it is a social institution , i.e., it is backed by the power of grovernment to enforce taxes.´

Esteban Perez