MMT: overcoming the political divide.

Discussion in 'Economics & Trade' started by a better world, Mar 12, 2020.

  1. Econ4Every1

    Econ4Every1 Well-Known Member

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    I'd argue that fiat money or anything used as money is based on debt, but that people don't understand what it means. I'd argue that gold is money based on debt (I'll address this separately), but to understand you really need to expand your understanding of debt and more importantly when and how it is paid.

    People confuse the following:

    1) Something borrowed

    2) Something owed.

    These are not the same, but we call both debt and this leads to unbelievable confusion (this thread is evidence of this). Furthermore, there is the question of "who" is owed and how the "debt" came into being.

    If I borrow from myself, what does that really mean and why would I ever do something like "borrow from myself"?

    The answer is simple. Accounting. It is the fundamental misunderstanding of the need to account for transactions that do not always happen at the same time (I "buy" a car but pay later) that creates the need for accounting and the difference between the transaction and payment creates debt. Other examples are when an organization has multiple departments. One department is in surplus the other in deficit. The one in surplus could simple give it's surplus to the deficient department, but when creating next year's budget how would the business know who to give what? IDebt at organizational levels is often just about accounting not "borrowing" in the intuitive sense that most of us think about when we think about debt.

    If I have a budget (not just of currency, or money, but of anything) and I exceed the budget, then I can imagine that I owe myself. For example, if I am rationing food and I overeat one day but promise to repay myself later, then I have borrowed from myself and owe myself a debt. The "debt" is mearly an accounting a "score" of you will that people keep track of. Again, just accounting.

    When a movie theater creates a ticket, they are creating debt. The theater didn't borrow anything from anyone to create the debt, yet once I purchase a ticket, I am owed a seat. The theater is in debt to me, equal to the number of seats I have acquired. But the ticket is fiat, it's not a thing of intrinsic value, but extrinsic.

    Now I apologize because I think you know almost all of this, so please consider this response more for the others that read it rather than yourself. The only thing I'm taking issue with is the idea that fiat isn't debt. It absolutely is. A debt for what? The repayment of taxes. The government promises to redeem dollars for repayment of taxes above all else.
     
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  2. Econ4Every1

    Econ4Every1 Well-Known Member

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    Gold is debt-based?

    Yes, sort of....

    In order to understand you need to know the difference between fiat and gold is when the debt is paid. Now, let me make it clear, that debt really isn't the correct term and you're all chomping at the bit to correct me, and to do so would be right, however, I need you to think outside the box. In order to satisfy a debt (or take it on in the first place)the person assuming the debt will have to work (or have done work). So debt and work are related. With gold, work is done upfront and what is acquired is income, thus the "debt" is paid before the real value can be acquired with fiat it's 180 degrees the opposite. In a fiat system income is acquired on a promise and the work to repay the debt is done after.

    So while I was loose with my terms, if you understand the relationship between debt and work you'll understand what I meant.

    With fiat, each person has a capacity for debt that's based on their capacity for income (work) minus their existing debt. In a gold-based system, each person does work and that work can be used to acquire gold. So income is work minus any existing debt.

    In a fiat system, the capacity to make purchases is all that is need to encourage people to work to provide things people need and want. In other words, businesses borrow or attract investors to make goods and services because they have an idea about the economies capacity to assume debt (because people work and earn dollars) already exists, thus the constraint on the system is the capacity to do work (which includes all that is necessary to do work including the availability of real resources). The constraint on the fist system is the capacity to do work. If a fiat system is overstimulated with demand inflation is the result. Thus inflation is the constraint on fiat, not the existence of dollars that can be created on-demand. Inflation happens, not when net dollars are created (as some seem to believe) but when the economy's capacity to use those dollars to purchase existing productivity can happen without causing real shortages. *Note, that fiat dollars are always created to consume someone's work, either in the past (eg. consuming existing inventory) or in the future (ordering something to be made). As long as whatever is in demand is available without shortage, then inflation will be kept at bay.

    My signature explains this. The value of currency comes from the productivity that justifies its creation. In other words, inflation happens when dollars are created but can't find the things that people need and want (mostly wants), thus if dollars are created to consume future work, they are, in effect, creating the thing that gives fiat dollars their value. Said again, as long as the supplier of what I purchase does not encounter shortages of supply, then the dollars created are given value by the real productivity they are being used to purchase (this is EXACTLY how credit cards work).

    In a gold-based system, the system is constrained by the amount of work that has been done already to create gold (as a currency) or things of real value that can be traded for gold. Sellers are competing in a system that can only expand with the creation of net new gold resources (or a shift in the relative value between gold and what it can buy which has consequences of its own, namely huge swings in inflation and deflation which are extremely destabilizing).
     
    Last edited: Jul 1, 2020
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  3. bringiton

    bringiton Well-Known Member

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    Money is what is generally accepted in exchange, and exchange involves settling debts, but that doesn't mean the item used to settle debts is itself always debt.
    You would be incorrect.
    I know what debt is, thanks.
    I have a good dictionary, and I know how to use it.
    Who calls them both debt? My dictionary calls something owed debt, but does not mention borrowing.
    So you agree it is something owed?
    Red herring. Debt is something owed, not something borrowed, and talking about debt to oneself is just seeking an excuse to equivocate.
    Right. Debt is payment that is still owed. Not the means of making the payment.
    Another red herring. Nothing is owed between the departments, so there is no debt.
    Here we go.... Imaginings are not facts.
    In your imagination.
    And not debt in the relevant sense.
    No they aren't. That ticket is not owed to anyone, and neither is anything else as a result of its creation.
    That is a debt because you paid for something you haven't received yet. Your possession of the ticket merely records the theater's debt to you. It is a receipt.
    The ticket simply records your having paid for the seat. It is merely a receipt, not money. It is fiat in the sense that the theater undertakes to repay its debt to the holder, and that is what gives it value. By contrast, government does not issue fiat currency to record a debt, but to settle a debt. See the difference?
    It absolutely isn't. To whom is it owed?
    A debt for the repayment of taxes??? That is not even grammatical. A tax liability is a debt that can presumably be settled with fiat money, but there is no "repayment" of taxes, just a payment.
    Again, that is not even grammatical. What "re"payment? The government will accept fiat money in settlement of tax debts, but the debt is the tax liability, not the means of settling it.

    The notion that all money is debt is nonsensical MMT BS intended to justify use of private bank debt as money. I have never seen a coherent, defensible justification for the claim, and I am skeptical that you will be providing one.
     
  4. bringiton

    bringiton Well-Known Member

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    Sort of not.
    Question begging fallacy. You start off assuming there is a debt. There isn't.

    Now what?
    I'm used to thinking outside the box. But I'm not going to be thinking outside correct English usage.
    False. No such premise exists in the definition of "debt."
    Refuted above.
    The only work we can definitely say is done up front is the work of mining and refining the gold.
    The product of the work...
    What debt? The real value is acquired by doing the work of creating it.
    No it isn't. It is acquired the same way it is in any system: as a return to value creation, or through exaction of rents by privilege.
    No it isn't. A government employee does some work and is then paid for it in fiat currency. The government had a debt to him, and settled it with fiat money. That money is not now owed to anyone. It is therefore not debt.
    I understand that the relationship you just described between debt and work is nonsense.
    Same in any system.
    False.
    Work can be used to acquire money in any monetary system. So what?
    Gibberish.
    Right: a credible promise of purchasing power in return is enough to stimulate value creation.
    That is a digression that I will not pursue, as it is irrelevant to the question of money being debt.
    Your sig line is false.
    That's just nonsense. In 1865, the value of Confederate money collapsed to zero even though the productivity of the economy that justified its creation was not materially different at the end of the year compared to the beginning of the year.
    Gibberish. Dollars don't find things.
    More gibberish. Dollars don't consume work or anything else.
    Except that it doesn't.
    No they aren't. They are given value by the fact that they can be used to settle debts.
    No it isn't.

    And none of this supports the claim that either fiat currency or gold money is debt.
    Correct. Because that gold is an ASSET that is not owned to anyone, and is therefore not DEBT.
    No. The constraint is the amount of gold money in existence, not the things it can be used to buy.
    Yes, gold (or any commodity) money imposes constraints that fiat money does not. How is that relevant to the claim that either of them is DEBT?
     
    Last edited: Jul 1, 2020
  5. Econ4Every1

    Econ4Every1 Well-Known Member

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    You obviously have a giant chip on your shoulder, which is your call, but if you're interested in a discussion with me, you need to leave it at the door.

    I'll leave you with the my assertion that you are mistaken or misunderstand about a lot of things, but as I said, I'm not interested in discussion with someone who doesn't have any manners.

    -Cheers
     
    Last edited: Jul 1, 2020
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  6. bringiton

    bringiton Well-Known Member

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    Get over yourself. This is the Internet, not your living room. People want to be entertained, and IMO readers are more likely to pay attention to and remember a good fight. It's also more fun for me to spar with the opposition.
    Yeah, but see, actually, I'm not. You are, and you could learn something from me if you chose to. Up to you.
    Fine. You have yourself a super good day, mkay?
     
  7. a better world

    a better world Well-Known Member

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    I greatly enjoyed your demolition of the orthodox view of debt (which I understand Econ4Every1 represents, certainly not the MMT view)....UNTIL your final comment:

    MMT certainly does NOT claim "all money is debt".

    MTT says sovereign currency-issuing governments can create the ****ing stuff (money), without creating debt owed to private financiers - provided certain conditions are relentlessly observed. Full stop.
     
    Last edited: Jul 1, 2020
  8. Econ4Every1

    Econ4Every1 Well-Known Member

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    That's incorrect.

    First, define "money".

    Then give me an example of money that isn't a debt.

    That said,

    Warren Mosler understands that US currency is debt, that fact does not invalidate MMT as a description of how our economy works. On the contrary, it helps explain it. The problem is understanding the difference between something borrowed and something owed. The government does not "borrow" money in order to have it. It sells treasuries and promises to owe interest in the future.

    Warren Moser himself has explained that government currency is a debt redeemable for payment in taxes. This is why when the government creates $1 in currency, it accounts for the creation of that currency as $1 debt.
     
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  9. Econ4Every1

    Econ4Every1 Well-Known Member

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    I never said the government's debt had to be owed to private financiers.
     
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  10. a better world

    a better world Well-Known Member

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    (Since Bringiton has dealt with most of your conceptions re debt, I will address only those few that have direct relevance to MMT).

    Re the above: people also WANT to participate in, and contribute to, the community's life and development.

    Yes: a statement with which classical economists (or neoliberal or neo-Keynesian or neo whatever) would agree, but which completely ignores a role for the state, in the production (output) of wealth, in the economy.

    If ANY system is subject to excess demand, inflation is the result.

    Correct. Inflation is a resource, not money, problem.

    Government that issues the nation's fiat currency - per se - is not dependent on productivity; but the economy's prosperity certainly is.

    Yes, provided we also understand citizens WANT a nation's fiat currency because they need it to participate in the economic life of the community, and to pay taxes and fees owed to the state. etc.

    which has been abandoned for practical reasons (some of which you address).
     
    Last edited: Jul 1, 2020
  11. a better world

    a better world Well-Known Member

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    Money is an element of sovereignty, imposed by government over the subject population (ie rule of law accepted by said population as a necessity to avoid anarchy).

    Government changing the digits in the bank accounts of laid-off workers, so they can buy food etc during a pandemic; this money is not debt from the point of view of the government.

    Mosler: "The Chairman of the Federal Reserve Bank is telling us in plain English that they give out money (spend and lend) simply by changing numbers in bank accounts. There is no such thing as having to “get” taxes (or borrow) to make a spreadsheet entry that we call “government spending.” Computer data doesn’t come from anywhere. Everyone knows that!"

    Mosler:

    ""Question: If the government doesn’t tax because it needs the money to spend, why tax at all?

    Answer: The federal government taxes to regulate what economists call “aggregate demand” which is a fancy word for “spending power.” In short, that means that if the economy is “too hot,” then raising taxes will cool it down, and if it’s “too cold,” likewise, cutting taxes will warm it up. Taxes aren’t about government getting money to spend, they are about regulating our (private sector) spending power to make sure we don’t have too much and cause inflation, or too little which causes unemployment and recessions".

    And "government owing interest in the future" (to be paid to private citizens/entities) is the ruse employed by the neoliberal system to convince everyone government debt per se is a problem.

    Yes...and such debt CAN be interest free, for the issuing government.
     
    Last edited: Jul 1, 2020
  12. Econ4Every1

    Econ4Every1 Well-Known Member

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    What you've described sounds like a currency.

    Take my farecard for the metro in my city. Was it produced debt free? Sure, but creation isn't the goal, circulation is. Can it be circulated without debt? No. Why, because the farecard entitles the purchaser to a ride on a train (assuming there is adequate credit on the card). The Subway is in debt to me as long as I hold the card.

    Can government money be created debt-free? Sure, as you say, the treasury can mark up all the electronic accounts it wants to, but again, creation is not the goal, circulation is. As soon as it falls into the hands of someone in the private sector, it becomes a debt as the user can now redeem dollars to satisfy tax burdens.

    Can you write a check without owing anyone money, sure you can write it and put it in your pocket, but why bother? You wrote checks so they can be redeemed.

    I agree, but none of this refutes my claims.


    Sure, Berdsdly Ruml laid out the reasons for taxation back in (1964?)

    (1) as an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
    (2) to express public policy in the distribution of wealth and of income as in the case of the progressive income and estate taxes;
    (3) to express public policy in subsidizing or in penalizing various industries and economic groups; and
    (4) to isolate and assess directly the costs of certain national benefits, such as highways and social security.

    But again, I'm not sure how this is a refutation of what I've said.

    I wasn't debating the merits of the system we have, merely pointing out how the system we have works.

    Generally speaking, interest is the reward a lender receives for taking risks. I think we can agree there is little risk is holding US gov securities and as a result interest should be low. Mosler points out that Treasuries should be 3 months or less and I'm inclined to agree and he supports zirp. Mosler also rightly points out that higher long term rates are little more than welfare paid to wealthy people for doing nothing but holding money.

    Sure, it can be, but I think we need to tread carefully. If there is money to be made in investments, if money is made available interest free, the wealthy will borrow it and invest it. If the investments are productive, that's one thing, but there are a lot of investments that do nothing to help the productive economy and end up being extremely parasitic. Asset gambling, short selling, speculation, these things are not very productive, but if the rate of return is higher than the rate of borrowing, then how do you prevent the wealthy from using interest-free money to speculate, etc?

    I think we agree more than you realize.

    But any decent currency is redeemable for something (which is a good thing) and this makes it a debt, but I think we are mixed up about what the nature of the debt is. I mean, most people think their debts must be paid and intuitively believe the same of government. In one sense government debt must be paid on each treasury, but on the whole, it does not. In other words, if you hold a Treasury and it matures, it must be paid, but the government is under no obligation not to just reissue two more to take its place. This is why crypto isn't money. It's a speculative investment with no real underlying value and investments make poor money. It has value only because people believe it does (oh the irony).

    If you want to argue the system of treasuries is anachronistic, I'm right there with you. The system exists as a relic of the gold era and it's made it difficult for people to separate fiat from commodity money.

    -Cheers
     
  13. a better world

    a better world Well-Known Member

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    Yes. Currency is issued by government, but when treasury changes digits in the bank accounts of workers, eg, for reasons of public policy during a pandemic, it becomes "money".

    In my example, the goal is to enable laid-off workers to buy food and pay rent. But here the money circulation is generated by the government, not the private sector (which has been forced into hibernation).

    I would say such 'public' money becomes debt, not because it enables payment of tax burdens (ie debt owing to government) but because it can be deposited in private banks.

    But Beardsley still believed government had to tax (or borrow) in order to spend?

    And as for point (2), Stephanie Kelton has written (humorously): Money doesn't grow on rich people" to show we don't need the money of rich people to enact chosen public policy (eg a Job Guarantee).

    MMT explains the changes to the rules re treasury and reserve bank required to enable the wealth creating ability of the public sector to be independent of private sector funding (taxes, borrowing, etc)

    Agreed.

    In MMT, inflation is the CENTRAL issue... and needs to be carefully managed.

    By regulation. Much of fraudulent casino financial ponzi needs to be shut down.

    Yes treasuries are anachronistic, and sovereign currency-issuing government doesn't need to borrow to support the economy through this pandemic, as orthodox economists are beginning to scream.... "It's our money" etc etc......

    As noted in professor Bill Mitchell's latest blog:

    http://bilbo.economicoutlook.net/blog/?p=45314&cpage=1#comment-68564

    Apparently the government has no money but then has plenty....

    "There is now a line of critics who acknowledge the validity of core MMT principles but think they are too dangerous for people to broadly share in that knowledge.

    Why?

    Because we apparently have reached a point in history where we hate dictators and eulogise the benefits of democracy (à la Churchill in the Commons on November 11, 1947 – “democracy is the worst form of Government except for all those other forms that have been tried from time to time”), but don’t want the politicians we elect to have the flexibility to advance our well-being.

    Or in simpler language – “because we don’t trust politicians”.

    This amounts to a world where the elites can manipulate the fiscal capacity of the state to advance their own interests (procurement contracts at will, bailouts when they mess up, etc) but if we want to do something about unemployment or poverty then the rest of us has to be held in this fictional (mainstream) world that appeals to our instincts of fear and uncertainty.

    And, of course we then are encouraged to distrust politicians and so it goes.

    My view is that once we expose these myths, more sensible political discourse can take place*.

    And if we do not like our government – that is they go crazy with their spending capacity – then we throw them out of office (in Australia, every three years of so).

    They can hardly destroy the nation in three years.

    I also think that if the standard of political dialogue was improved, higher quality candidates would seek election and push out the time-serving careerists who dominate all political parties.

    It is an extraordinary world where we accept a deception because knowing the truth might require us to act differently (become more politically engaged and demand quality political behaviour).

    *other than the excruciating 'more tax - less tax' debates in our current parliaments.
     
    Last edited: Jul 2, 2020
  14. Econ4Every1

    Econ4Every1 Well-Known Member

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    It's probably semantics, even Warren Mosler said in an interview I watched recently that he doesn't like the term money. Currency is issued by some issuing authority and it has the properties that are generally understood as money, i.e. store of value, unit of account etc.


    I don't see how where the debt originates changes the fact that it's a debt. This is why I keep saying there is a difference between something borrowed and something owed. The government DOES NOT borrow, but it creates IOU's which are obligations and therefore the government owes something in return. Even if you erase treasuries, this changes nothing,

    Again, I used the example of a farecard on a city metro system. They are created debt-free, but once in circulation, they are debt. This is where we could really use a word that differentiates between debt as something borrowed and something owed.

    You see my point here?

    I agree with you it really matters the nature of the debt. When I take a "loan" from a bank, I borrow dollars today in trade for more dollars in the future. When the government creates dollars it has no obligation to ever repay the money it created to itself, but it does owe the people that it's issued to a tax credit.

    No, he didn't, the paper he wrote titled:"Taxes for Revenue are Obsolete", drives this point home . Ruml was arguably the second most powerful person in government with respect to financing at the Hed of the NY Fed he understood as far back as 1946 (sorry transposed the last two numbers in my last reply). You don't see in his list of things the government taxes for to raise revenue for the federal government. You know why? Because he understood.

    Here is a transcript of what he said: http://home.hiwaay.net/~becraft/RUMLTAXES.html

    Agreed, but again the question is, is fiat currency "debt". I'd argue that, by definition it is, the challenge is to explain the difference between borrowing and owing and the importance of the distinction and how it has soooo confused the economic orthodoxy.


    In theory that's a good idea, but money is fungible. For example, let's say a wealthy person has $1 million dollars they want to spend to make a purchase. Instead of spending the cash to make the purchase, they borrow at zero or near-zero interest rates to fund what they want to buy and use the $1 in cash to speculate or engage in other unproductive finance (all that is needed is to earn a rate of return higher than the rate of interest they borrowed the million), how do you regulate that? I mean unless you're talking about a paradigm shift in the way Wall St. works. In theory that sounds like a good idea, in practice, I wonder if it's possible.

    In theory, theory and practice are the same, in practice they are not. -Einstein

    Yes, but the money it issues it still owes something which makes it a debt.
     
  15. bringiton

    bringiton Well-Known Member

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    I have seen that claim repeatedly from people who purport to be, and are regarded as, qualified to explain MMT.
    That would be true and (at least to me) uncontroversial. But I have seen a lot of other stuff described as part of MMT, including the claim that all money is debt, the federal job guarantee policy, etc.
     
  16. bringiton

    bringiton Well-Known Member

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    That which is generally accepted in exchange.
    The cigarette money in POW camps. Cowrie shells, which were money for a longer period than any other. Precious metal specie coins from classical times to the 19th century. Also fiat money such as the base metal coins in use in most countries.
    What does that even mean? The money may be issued to settle a debt, such as to pay government employees' wages, and the only other debt is a tax liability, not the money used to settle it.
    No, that is merely a formal requirement of double entry accounting. It is recorded as a "liability" to balance the newly created asset, like retained earnings on a corporate balance sheet, but that does not mean it is owed to anyone.
     
  17. bringiton

    bringiton Well-Known Member

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    Then what would you call cowrie shells, which were generally accepted in exchange over a large part of the world for thousands of years without ever having been imposed by any government?
     
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  18. bringiton

    bringiton Well-Known Member

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    The card merely records that you have paid for something you have not yet received, like a receipt.
    How does that make it a debt? It is not owed to anyone merely for having passed into private hands. Being useful for settling a debt is not the same thing as being a debt.
    A check is an instruction to your bank, not a debt.
    But Ruml missed the one defining purpose of all the taxes that have ever been levied: to transfer purchasing power from the private to the public sector.
    No. Risk is a factor in interest, but assumption of risk alone does not earn any reward: criminals take bigger risks than anyone, but they don't earn anything. Interest is a fee proportional to amount and time that is paid for temporary use of purchasing power.
    And to banks for creating it.
    They mostly use it to bid up the prices of each other's rent collection privileges, blowing asset bubbles, as we have seen so very clearly over the last 40 years.
    Does this mean anything more than that it is acceptable in settlement of a debt? I.e., that it is generally accepted in exchange, which is what makes it money by definition?
    No. Unless it is owed to someone, it is not a debt.
    More to the point, the government is under no obligation not to just print the money to pay for the bond, instead of paying bond holders interest for doing nothing.
    Right. It can't circulate as money because its value increases, so people want to hold onto it, not spend it. But if it is not generally accepted in exchange, what good is it?
     
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  19. bringiton

    bringiton Well-Known Member

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    GENERALLY ACCEPTED IN EXCHANGE.
    What makes money a debt or not is whether it is inherently owed to someone, like the outstanding bank loan principal that makes up >95% of the money in circulation in most advanced capitalist countries.
    That is what one SPECIFIC government DOES, not what ALL money IS by definition.
    The metro card is just a convenient way of issuing a receipt that is easily modified to show partial redemption. It is not a debt; it records a "debt."
    Huh?? It is any such tax liability itself that is the debt, not the means to settle it! What if someone holds money but owes no taxes? What is owed to anyone as a result of that money existing? Where is the debt?
    By what definition?
    Huh? What does that even mean? How can money owe something?
    If it isn't owed to anyone, it isn't debt.
     
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  20. Econ4Every1

    Econ4Every1 Well-Known Member

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    You think that would work at a state or national level? I mean, for that matter monopoly money is money by your definition which, IMO, makes your definition so vague it's not really all that useful.

    If you have to reference populations that are extremely small or existed hundreds if not thousands of years ago or in tiny tribes mostly cut off from the outside world, I think you've invalidated your own point in the context of this discussion.

    This is why the term money in these sorts of conversations has little use because it is a general term that appeals to our intuitions rather than a specific term with a specific meaning.

    As far as base metal coins. Can I pay my taxes with coins? If yes, then they were created as an IOU and are therefore a form of debt. The fact that Treasuries weren't sold as a justification for creating them, doesn't change that fact.

    Gold is not money, it's either 1) a commodity that people trade or, 2) it has in the past been a popular choice of metal used to create a nation's coins. But as soon as the government "coins" it into a specific shape and creates legal tender laws, it is the form that gives it value, legally speaking, not what it's made out of. Said differently, if you wanted to pay your taxes when gold coins existed, you couldn't pay in gold, only the coins minted by the government (which were made out of gold) because the government-controlled the minting of the coin. Gold was used to encourage people to adopt the nation's money, the idea being that if the government collapsed, people would still have a commodity like gold they could trade in. Of course internationally, gold coins had value because they were gold, not pressed into a particular shape, but then, we're back to #1.

    Nationally, it's not the metal that gives a coin it's value (if it were all coins created today would be rejected and unused), it's the fact that the government has stamped it into its shape and has monopoly power over its creation. The same cannot be said for cigarettes and shells.

    I don't care what the gold bugs claim, but gold coins are no different than paper bills in the sense that they are both fiat. The difference is that one is made of something of perceived intrinsic value, the other's value is entirely extrinsic.

    I'm surprised to hear you say you don't understand this.

    I'm sure you're familiar with the claim that government has to borrow in order to have money to spend, a claim I hope that, between you, a better world and myself know is wrong. To explain let me go to a story that Warren Mosler tells about a trip to Italy that goes like this:

    I was in Pompeii, in Italy, about two months ago. The guide was saying, ‘Here are the coins we found. The government would collect the coins and then it would spend the money on infrastructure. Because people wanted Pompeii to be a nice place to live.’

    And I said, ‘Well, they spent the coins first and then collected them.’

    And he goes, ‘No, no, no. They collect the coins in taxes first. And then they spent them.’

    I asked him, ‘Where did the coins come from?’

    ‘The government made them.’

    ‘Okay. How did anybody get them?’

    ‘You’re saying they had to spend them first and then tax?’

    I said, ‘Yeah, what else could they do?’

    ‘I don’t know.’

    He was very confused…


    The point here being that imposition of taxes is a debt burden that the government places on us all. Then the government creates the method to satisfy that debt, dollars. If you have dollars the government now owes you relief from that debt equal to the dollars you hold.

    upload_2020-7-2_21-18-42.png

    To owe is to be in debt. Your splitting hairs to avoid being wrong.

    Now, I've already said there is a fine line between debt that is owed and a debt that borrowed. If that is the distinction your making (whether you realize it or not) I'm good with that, I would agree. But you are refusing to acknowledge the difference because you acted like a turd earlier in this thread and when you act like a turd it becomes more difficult to admit your wrong as the conversation becomes adversarial rather than one of mutual respect which is why I don't disrespect people for my personal amusement.
     
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  21. Econ4Every1

    Econ4Every1 Well-Known Member

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    Again, splitting hairs. If I hold anything that entitles me to something I have not yet claimed like a seat in a theater, a credit on a video game in an arcade or a ride on a train, then those companies are in debt to me until I redeem my token (whatever form it takes). They are obligated to provide whatever services they have promised (usually with force of law). While most promises are purchased with currency, they could just as easily in another context be purchased with work directly, and indeed in the past miners living in mining towns in the 1800's were often paid for in "credits" that could be used to shop at the company store. The credits created looked something like money and could even be spent, just like money in the surrounding communities because anyone that held the credits could shop at the company store. If you held the companies credits, the company owed you goods and services that the company provided in its store.

    How does that radically differ from the government's currency? Dollars are an accounting of what the government owes for the redemption of tax debt. The reason that government money is so widely accepted is the imposition of the incessant liability that taxes place on everyone. This means that if you have more dollars than you need to satisfy your debt, you can save them as someone else is liable to need them. Of course, I'm not saying that the average person gives what I've said a single thought at this point. It is the economy and the goods and services that people provide in trade for dollars that is the real driving force behind the value of the dollar, tax debt is merely the root, the anchor if you will that began the cycle and ensures that it perpetuates.

    Wrong. The only reason one needs to settle a debt is that something was owed. If you owe someone something you are in debt.

    Way to miss the point, it makes no difference if it's a check or I write out an IOU, the creation isn't what's important it's the circulation.

    No, Ruml didn't miss it, you did as it is covered in the very first reason, #1

    " as an instrument of fiscal policy to help stabilize the purchasing power of the dollar;"


    Again, splitting hairs. Here let me say it again, more correctly.

    Interest is the potential reward for taking risk

    Seriously, who cares and what does that have to do with the price of tea in China?

    Correct, but I was addressing a specific point, that being if we adopt ZIRP, can we or should we prevent the wealthy from borrowing at one rate (presumably very low) and using the money nearly risk-free to make more money at a higher rate? Do you have any thoughts on that?

    So it is based on debt? I'm glad we finally seem to be getting somewhere!

    Debt.

    I said:

    "Yes, but the money it issues it still owes something"

    I probably could have put a comma after "issues"

    "It" in this context is the government, not money.

    If I hold dollars, the government is in debt to me. But just like holding an arcade token puts the arcade in debt to me, the debt isn't universal. The token is a debt for a certain number (or fraction thereof) of credits at the arcade. In the case of the dollar, the government only promises one thing with respect to its obligations to those that hold dollars. Forgiveness of one's debt burden.

    I think we agree that EXACTLY what the government does. Selling treasuries is nothing more than a relic of the gold redemption/ standard era's. Something that could be ended tomorrow and all that would happen, at least in my opinion, is that people would have to seek other vehicles for savings. Well, at least nationally. Internationally I think there would be a much larger effect, but not something that couldn't be overcome.

    Spot on, couldn't have said it better myself.
     
  22. Econ4Every1

    Econ4Every1 Well-Known Member

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    Which is why we have to be more specific in discussions like these.


    Wrong. Receipts and ledgers (to name two examples) record debts, they are not redeemable for those debts. This is why most metro stations will issue you a receipt separate from the farecard if you wish.

    Farecards are a form of currency issued by the system. The system then owes you something in exchange for the currency you hold. As long as you hold the farecard, the system is in debt to you and it is the debt that is redeemable for a thing of real value, in this case, a ride on a train, that gives the farecard it's value.
     
    Last edited: Jul 2, 2020
  23. a better world

    a better world Well-Known Member

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    Including Econ4Every1 ?...I still have to get my head around what he is saying about debt.

    Well I am not one of them (leaving aside the JG in this discussion).

    btw, I like your Cowrie shells as an example of money, just like Mosler's "score-board points" they are free and (in effect) unlimited, meaning they don't carry a debt obligation.

    I think MMT'ers who claim money is debt are confused by the statement that a piece of paper money is merely an IOU.
     
    Last edited: Jul 2, 2020
  24. a better world

    a better world Well-Known Member

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    They are not an element of political sovereignty, like the debt-based coins that the Romans introduced into Britain.

    It occurs to me MMT combines political sovereignty with the debt-free nature of Cowrie shells, in our modern public sector - private sector economic divide.
     
  25. a better world

    a better world Well-Known Member

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    No doubt bringiton has already addressed your point here, but I will respond:

    1. "they are created debt free"..........by whom? the government, or the private city metro company?
    If by the government, we are back to debating the nature of debt.

    2. "something borrowed and something owed" Something borrowed does not involve debt, only an obligation (presumably) to return something in the same form as it was received. No money exchanges hands.
     
    Last edited: Jul 2, 2020

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