Sabri Oncu wrote: > We are in a minor disagreement, Jim. Fiat money is debt also, the debt > of the central bank to itself. Further, fiat money is credit also, the > credit of the central bank to itself. Hence, in your terminology, fiat > money is bookkeeping money also, which means that debt (liabilities) = > money = credit (assets) to the central bank at the moment the central > bank creates it.
I see the central bank as backed by the coercive power of the state (which created it, after all). Only with that backing can the central bank "owe money to itself" and have it count as money. This involves the state preventing counterfeiting, forgery, and the rise of competing monies, which goes beyond the standard role of a central bank. Also, one of the key reasons why fiat money has purchasing power is because the state accepts it in payment of taxes and fees. That's a guaranteed demand-side factor that keeps fiat money scarce. > However, if there is no central bank, and the US did not have one > until 1913, then who creates the fiat money? In the US, we had convertible commodity-backed paper money during most of the time before 1913 (and even afterwards: the US$ was domestically convertible to gold until 1933 and internationally convertible until the Nixon shocks). During some periods, however, the U.S. Treasury acted like a central bank and issued non-convertible paper. (I don't know enough about the first and second Banks of the U.S. to comment about that period.) Sabri also wrote: > Another thing: in a sense commodity money is fiat money also, unless a > commodity itself is used for payment. Because the state can chose > whatever commodity to pay in exchange of whatever money it issues. It's true that the state can choose any commodity (plutonium, anyone?) to pay in exchange for its paper money, but that commodity has to live up to the rules: commodity money has to be durable, standardized, portable, non-toxic, divisible, and, most importantly, scarce. If the state promises to pay people for its paper money with something that doesn't live up to the characteristics I listed, it won't fly. Could the state back its paper money with sand, for example? > But, what if there is no state? A state isn't needed for there to be money. The Saddam dinar -- which started out as fiat money -- was circulating (and had purchasing power) even though Saddam himself and his government had been overthrown. This dinar circulated because it was scarce. (It was suppressed by the occupying power, however.) Further, cigarettes -- a classic commodity money -- have acted as money in prisons and POW camps (even though, strictly speaking, they are toxic). Of course, there can't be fiat money without a state. When states fall apart, their money becomes worthless (in a torrent of hyperinflation). Having a state helps with commodity money, e.g. putting the king's face on coins to guarantee that the money-lenders didn't stuff them with lead, while standardizing weights and measures. Of course, when the state wants to, it can imitate the money-lenders and put lead into its own coins. > Or if there are many states and other states do not accept what my state > chooses? that just reinforces what I said: the state can't just choose _any_ commodity to back its paper money with. And before the US became the hegemonic state on the world scale, people in the US couldn't use our fiat money internationally. It's only as a military-financial-industrial hegemon that the the US can continue having its fiat money accepted outside of the US. -- Jim Devine / "In an ugly and unhappy world the richest man can purchase nothing but ugliness and unhappiness." -- George Bernard Shaw _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
