Re: RE: state power theory of money
Patacones were issued by the govt. of Buenos Aires province. While they are widely accepted,they still are a provincial money. There is another phenomenon in Argentina with a currency (the unit of which is called a crédito) which has been created by a very extensive network of barter clubs (Red Global de Trueque, http://trueque.org.ar). These clubs were formed as a popular response to the recession. All sorts of goods and services are bartered in these clubs, which are distributed all over the country. It has more than 350,000 members and it is estimaded it did more than $600 million (pre devaluation) in business last year. The currency used in this network is now being accepted by a few municipalities in the interior of the country for tax and other service payments. What is perhaps interesting here is that this money existed long before any local state recognized it, and it is now becoming acceptable for tax purposes. This does raise many interesting questions regarding who controls money, the role of the state and popular organizations, etc. There also many examples (if more localized) in the US, Syracuse comes to mind. Alan At 1/9/2002, you wrote: I just was handed a patacon from someone who just returned from Argentina. The first thing that hits you is that it looks so much like their peso. The patacon was issued and used to pay government worker salaries. They key state power here was the declaration that patacones would be accepted in payment of taxes. Of course, then there is another state power implied there--the power to tax. An the power to issue the patacon. And the power to set prices for goods and services the government purchases. So any state power theory of money must recognize at least these powers: 1) power to tax; 2) power to issue currency; 3) power to declare public receivability (what will settle obligations at state pay offices); 4) power to set certain prices. This is straight chartalist monetary theory. Mat _ Do You Yahoo!? Get your free @yahoo.com address at http://mail.yahoo.com
Re: state power theory of money
Jim Devine wrote: The problem is that the kind of agreement between countries that you refer to has never fit with the interests of the hegemonic power, i.e., the U.S. Jim Devine What can be objected (in addition to Alan's recent assessment abaout Argentina's case) is the fact that examples of world hegemony of hegemonic power's currency seem to be rare in history. As far as I am informed, there are only two of them: pre-hellenistic Athens and today's USA. Even Rome had to pillage the treasure of conquerred countries and to impose a tribute on them, to pay its balance of trade. Europe of the 17th century, of which the balance with Asia was negative, needed gold from America's mines, and entered a long crisis, in 17th century, when human wastings in these mines were not enough to feed the trade deficit. Victorian England, confronted with the same problem, invented the balance sterling, that is to say the first immaterial world currency. But the reference to gold was not yet revocable, and the sterling lost the hegemony when after the first world war England entered recession. After second world war, the USA's balance of trade being normally negative, the parity between dollar and gold could only work under the condition that nobody demands of the USA that they fulfil this clause. Both General de Gaulle and eurodollar market shattered this fiction. Now, dollar is inconvertible however be the currency. But this, because dollar is accepted by the reste of the world. Should the recession or instability last, dollar would loose its current status. To summ up my thinking, so far: 1. The balance of trade of world-hegemonic power is always negative. 2. What implies the necessity that international settlements be done in its own legal currency. 3. But this gift requests the confidence from world trade. 4. The dollar being no more related to gold, this confidence lies on the USA's economic stability. 5. Indication of stability, in the eyes of the USA's creditors, lies on the financial US market where their bills are circulating. As for the military power, it can eventually be used for directly extorting tributes, but not in sustaining the dollar that is for the moment the best instrument of extortion, as long as it is accepted in stettlement of trade balance. Romain Kroës
Re: state power theory of money
On Wednesday, January 9, 2002 at 20:03:44 (-0800) Steve Diamond writes: David Friedman, the anarcho-capitalist son of Milton, has a piece arguing for private money. ... This is the same idiot who in his book *Hidden Order* argues that Americans give gifts in non-cash form because of a hostility to money which he claims is typical of our society. (p. 331) Bill
Re: Re: state power theory of money
Back in the 1960s, I spent a couple of afternoons with him at his apartment. He had a good sense of humor. He also thought that his father was too liberal. He wanted to abolish the FDA. Companies that sold bad medicine would be punished in the market place. William S. Lear wrote: On Wednesday, January 9, 2002 at 20:03:44 (-0800) Steve Diamond writes: David Friedman, the anarcho-capitalist son of Milton, has a piece arguing for private money. ... This is the same idiot who in his book *Hidden Order* argues that Americans give gifts in non-cash form because of a hostility to money which he claims is typical of our society. (p. 331) Bill -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
RE: Re: Re: state power theory of money
Michael Perelman writes: Back in the 1960s, I spent a couple of afternoons with him [David Friedman, son of Milton] at his apartment. He had a good sense of humor. He also thought that his father was too liberal. He wanted to abolish the FDA. Companies that sold bad medicine would be punished in the market place. The MF himself suggests that we get rid of the Food Drug Administration in his CAPITALISM FREEDOM. Once you've discovered that Thalidomide led to the horrible birth defects of your child, you refuse to buy that product again, so that the company eventually pulls the product from the market, bowing to the sovereign consumer... In reality, what would happen is that a lot of people would sue. The FDA seems aimed at protecting Pharma (both Big Small) from law-suits. A lot of US government regulations seem to fit this description (rather than being an expression of the will of the people). Unless it's through law-suits (and their avoidance) that the will of the people is expressed? Jim D.
RE: Re: Re: state power theory of money
I believe that the father has also advocated for abolishen of the FDA. While I don't agree with father or son on this at all, I do think it can be argued that in addition (but not instead of) its regulatory role, the FDA would serve the public interest a lot better by providing a lot more information about the products it regulates. If individual drug companies are allowed to promote drug directly to the consumer the FDA should also be obligated to present balanced information about those same drugs, including information about non-drug or cheaper drug alternative that might be just as good, including much wider publicity of the information that FDA accumulates on adverse drug reactions or ineffective drugs through post-market surveillance and post-market clinical studies. Such a role is very consistent with the whole Arrow, Stigletz, Alerloff stuff about information asymmetry, etc. (and one would think with the Friedman father and son if they really believe in the virtues of perfect markets) Of course it won't happen in the U.S. without a lot of agitation because, if done right, this would dramatically reduce drug industry profits. In the early days of the tobacco wars, there was a period during which tobacco companies were allowed to continue advertising on TV but anti-smoking ads were also put on the air during prime time. This has been shown to be the single most effective approach to reducing smoking. After a while this policy was substituted by ban on tobacco advertising along with a major decrease in the anti-smoking ads. If I remember correctly, the latter coincided with decisions that TV stations had no obligation to carry public service announcements as part of the to serve the public interest component of their license. The current situation is coming close to ludicrous. The other day I noticed a direct to consumer ad for Lipitor followed immediately by one for Zocar. Hey, you can't take them both! (For those who don't know, these are two of the best selling statin drugs for the control of high cholesterol). -Original Message- From: Michael Perelman [mailto:[EMAIL PROTECTED]] Sent: Thursday, January 10, 2002 10:51 AM To: [EMAIL PROTECTED] Subject: [PEN-L:21288] Re: Re: state power theory of money Back in the 1960s, I spent a couple of afternoons with him at his apartment. He had a good sense of humor. He also thought that his father was too liberal. He wanted to abolish the FDA. Companies that sold bad medicine would be punished in the market place. William S. Lear wrote: On Wednesday, January 9, 2002 at 20:03:44 (-0800) Steve Diamond writes: David Friedman, the anarcho-capitalist son of Milton, has a piece arguing for private money. ... This is the same idiot who in his book *Hidden Order* argues that Americans give gifts in non-cash form because of a hostility to money which he claims is typical of our society. (p. 331) Bill -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
RE: state power theory of money
the argument as it has been developed recently is that there are horizontal and vertical components of the money supply process. The horizontal component is the state money component. The vertical component covers most of these other instruments you refer to, which are basically understood as leveraging of state money. see Wray's UNDERSTANDING MODERN MONEY, Elgar, 1998 or my own A General Framework for the Analysis of Currencies and other Commodities in P. Davidson and J. Kregel, eds., FULL EMPLOYMENT AND PRICE STABILITY IN A GLOBAL ECONOMY, Edward Elgar, 1999. -Original Message- From: Steve Diamond [mailto:[EMAIL PROTECTED]] Sent: Wednesday, January 09, 2002 10:04 PM To: [EMAIL PROTECTED] Subject: [PEN-L:21277] state power theory of money David Friedman, the anarcho-capitalist son of Milton, has a piece arguing for private money. The problem I see with the state power/fiat money argument is that there are lots of instruments out there that should qualify as money that are not creatures of state creation. A recent article in one of the Hayekian journals actually makes this kind of argument in a discussion of money market funds - which, of course, have no reserve requirements. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
RE: Re: Re: state power theory of money
he wouldn't say his dad is too liberal, but too socialist. liberal for people like David Friedman means classical liberal or libertarian. by the way, for the austrian take on the state theory of money there is a good article by Selgin called On Assuring the Acceptability of a New Fiat Currency in Jl of Money, Credit and Banking, 1994. That is where I got the argument about fiat money being traceable back to a metalic standard. Also, Selgin had an article on How the Invisible Hand Would Handle Money in the JEL 1994. There is a whole free banking school that includes people like Selgin, Larry White, Steve Horwitz, etc. You can see why they see Uncle Miltie, who accepts a Central Bank, as not libertarian enough. -- From: Michael Perelman Back in the 1960s, I spent a couple of afternoons with him at his apartment. He had a good sense of humor. He also thought that his father was too liberal. He wanted to abolish the FDA. Companies that sold bad medicine would be punished in the market place.
RE: state power theory of money
I just was handed a patacon from someone who just returned from Argentina. The first thing that hits you is that it looks so much like their peso. The patacon was issued and used to pay government worker salaries. They key state power here was the declaration that patacones would be accepted in payment of taxes. Of course, then there is another state power implied there--the power to tax. An the power to issue the patacon. And the power to set prices for goods and services the government purchases. So any state power theory of money must recognize at least these powers: 1) power to tax; 2) power to issue currency; 3) power to declare public receivability (what will settle obligations at state pay offices); 4) power to set certain prices. This is straight chartalist monetary theory. Mat -Original Message- From: Devine, James [mailto:[EMAIL PROTECTED]] Sent: Wednesday, January 09, 2002 12:05 PM To: '[EMAIL PROTECTED]' Subject: [PEN-L:21251] state power theory of money [was: RE: [PEN-L:21246] Re: FW: Re: Re: sinking Argentina ] Romain Kroes writes: Very interesting and relevant subject of controversy, Jim. thanks. But is the forced circulation of fiat money a reality? By forced circulation, I mean (and I believe Marx meant) the use of state power to ensure that the fiat currency is used and accepted within a certain geographical area. The U.S. dollar has legal status in the U.S. -- it's legal tender for payment of all debts, public or private -- while the U.S. government accepts the fiat money in payment of dollars, fees, fines, etc., creating a permanent demand-side underpinning for its having a market-value above its production cost. (One interpretation of one U.S. financial crisis under 19th-century President Jackson was that it was sparked by the government's refusal to accept fiat money in payment for its sales of western lands. That is, the government lapsed in its role as underpinning the demand the fiat money.) Further, the Federal Reserve -- an agency of the U.S. government -- keeps its supply limited. As I said, if the power of the state collapses -- as in Germany after World War I or the U.S. Confederacy in 1865 -- the fiat behind the money collapses, so the fiat money itself loses value. (BTW, this presumes that the state doesn't want hyperinflation. I think that makes sense except when the state itself is falling apart.) If it were, general level of prices would be immutable. I don't get this, unless the power of the state is always constant. Also, though the power of the state is the fundamental or structural basis for the value of fiat money, there are all sorts of short-term or conjunctural factors which play a role. Unless you believe in the quantity theory. Do you? If yes, it is another controversy. Somewhere in volume III of CAPITAL (I'll look for the reference if you wish), Marx endorses a version of the quantity theory of money for _fiat money_ (though not for gold or other commodity moneys). That is, if the quantity supplied of a convertible non-gold currency rises relative to the amount of gold that backs it up, the gold price of the former falls (cet. par.) so that prices stated in the non-gold currency rise. Under the gold standard, the same happens with officially non-convertible moneys. I don't believe in the quantity theory of money (which I interpret as positing a simple and stable positive relationship between the quantity of money and the price level), because the demand for money is typically unstable. Further, the quantity theory's added assumption that the economy always operates at full employment is demonstrably false. The quantity theory does have a rational core, i.e., that if there's persistently too much fiat money in circulation relative to demand it encourages inflation and even hyperinflation. The problem is that the quantity theorists (e.g., Milton Friedman) interpret this type of event as merely a mistake by the government or as a sign of its perfidy. I interpret it instead as a sign that the state is falling apart, that society is divided by severe class and other struggles, that the government can't collect sufficient taxes or cut expenditures enough -- and finds itself able to borrow only at usurious rates that make its budget deficit worse. (If it can't borrow, then the deficit must be monetized.) Economic dependency makes this sitution more likely. (Internal struggles need not be reflected in hyperinflation, as seen (until recently) in Argentina. With the kind of forced dollar/peso parity that Argentina had, the conflict is reflected in other ways. So even though conflict causes inflation cet. par., it need not do so in all situations.) On the other hand, if people don't trust a fiat money, nobody can force them to use it. They use another one. I think that the problem lies elsewhere. Though subjective trust in money -- i.e., a belief that other people will accept it -- is crucial, I believe
RE: RE: state power theory of money
Mat writes: This is straight chartalist monetary theory. can you tell me (pen-l) about who developed this tradition? somehow I never picked it up and seem to have developed a version of it independently. -- Jim
RE: RE: RE: state power theory of money
Well, it can be found in Adam Smith (a few passages), and there are some other proto-chartalist meanderings, but the key text is Knapp's State Theory of Money. Keynes in the Treatise on Money explicitly accepts Knapp's main theses. Abba Lerner also embraced it in a short piece in the AER, 1947 I think, called Money is a Creature of the State. More recently it can be found in Minsky (Stabilizing an Unstable Economy), and the neo-chartalist revival includes Randy Wray (Understanding Modern Money), Stephanie Bell (articles in the CJE, JEI), and others. Charles Goodhart is also a key recent reference--in his article in the European Journal of Political Economy, Goodhart contrasts the metalist-Mengerian-Monetarist tradition (the M-team) with the Cartalist tradition (the C-team). Menger's followers include the Austrians, etc., who claim that fiat money is still loosely but definitely tied to gold (and other metals) and look to the evolution of private moneys as the key,! with the State 'interfering' with these 'natural' developments. Goodhart had an interesting editorial called One Government, One Money asking how can the 'one nation-one money' phenomena possibly be a coincidence? and using the framework to highlight weaknesses in the EMU arrangements (where countries in Europe voluntarily reduce their own position to that of states in the U.S.--political entities that have no monetary authority on which to base their fiscal policies). Mat -Original Message- From: Devine, James [mailto:[EMAIL PROTECTED]] Sent: Wednesday, January 09, 2002 2:43 PM To: '[EMAIL PROTECTED]' Subject: [PEN-L:21263] RE: RE: state power theory of money Mat writes: This is straight chartalist monetary theory. can you tell me (pen-l) about who developed this tradition? somehow I never picked it up and seem to have developed a version of it independently. -- Jim
Re: state power theory of money
Hayek also argued for privately issued money. Of course, bank in the US issued money in the early nineteenth century, causing enormous confusion -- sort of like an Enron-inspired banking federal reserve. Steve Diamond wrote: David Friedman, the anarcho-capitalist son of Milton, has a piece arguing for private money. The problem I see with the state power/fiat money argument is that there are lots of instruments out there that should qualify as money that are not creatures of state creation. A recent article in one of the Hayekian journals actually makes this kind of argument in a discussion of money market funds - which, of course, have no reserve requirements. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED] -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
RE: state power theory of money
Steve Diamond says:David Friedman, the anarcho-capitalist son of Milton, has a piece arguing for private money. The problem I see with the state power/fiat money argument is that there are lots of instruments out there that should qualify as money that are not creatures of state creation. A recent article in one of the Hayekian journals actually makes this kind of argument in a discussion of money market funds - which, of course, have no reserve requirements. all of the near-moneys are based, directly or indirectly, on fiat money. For example, money market funds hold a lot of T-bills as assets. Without the stability that U.S. power and the power of the Fed (a government agency) provided, the MMFs couldn't get anywhere. In Marx's time, it was a country's gold reserves that formed the monetary base, the stock of high-powered money, upon which the whole system of money and near-money rested. Now it's dollars, which are in turn based on U.S. state power. (Other countries do hold other currencies as forex reserves, but most of these get their stability from the power of the states that issued them, which is in turn dependent on the success of the US-dominated hegemonic coalition.) -- Jim Devine.
