Re: Putting Chartalism In Its Place?

[William F Hummel <wfhummel@xxxxxxxxxxx>]

>An additional point, for clarification:
>
>No one (I know of) is arguing that ALL monies in history are
>'tax-driven'.  Just that some (even many, and many more than we once
>thought) are, and it is one (important ) mechanism for establishing a
>currency, under certain conditions.  So of course there are many
>examples of many different kinds of money in history etc.
>
>The important point is that it serves as a guide as an important manner
>in which a monetary economy may be organized, with certain important
>policy implications.
>
I think we can argue more explicitly:  the national currencies of all
industrial countries in the modern era use inconvertible fiat money,
and are necessarily tax-driven.  In each case the fiat money is the
country's monetary base into which all credit must be convertible on
demand if that credit is to serve as a money proxy in the commerce of
that country.  Otherwise that credit is simply the other side of
private debt.

Going a step further, monetary policy can be implemented in one of two
ways, (1) controlling the growth rate of the monetary base leaving the
interest rate as a dependent variable or (2) controlling the interest
rate and leaving the growth rate as a dependent variable.  Monetarists
advocate the first alternative, but all industrial countries have
adopted the second, and for good reasons in my view.

In either case, the credit money supply, which is medium mainly used
in commerce, is endogenous.  It grows as function of the demand for
credit and the willingness of banks to issue it.  Monetary policy can
influence it, but only indirectly and usually with a substantial time
lag.

William