I didn't or didn't mean to say Knapp's theory *leads* to totalitarianism. What I thought I said or should have said was that it can become a *rationale* for totalitarianism for the totalitarians. There are many rationales for totalitarianism as there are many rationales for libertarianism or democracy. What counts is the consensus for one as against the others regardless of how we individually rationalize it.
At the very least it is rationale for continued taxation. Without tax liability money loses its value and private sector production and consumption collapse. The theory is not so much a theory of money but a theory how money can be used as an instrument of control over people. In this respect I completely agree. You can indeed impose a tax then require that the tax be paid with the government's money. Instead of fishing and gardening mangos, they will have to work in the government's factory to "earn" the government's "money" to pay the government's "taxes." So as a social engineer you effect the transition from "primitive" to modern "culture." As a theory of historical development it may or may not have happened that way. Things might or might not have gotten to where they are today through such a route. That is a question for the historians to answer. It is an interesting alternative to the goldsmith story. It is certainly not a theory of government "by, for and of the people" but a theory how the people in the government can exploit the people (who do not have the sanction of government) for their own gain with the rationale that it's good for them too. It's better for them to be in the government's factory "earning" the government's money instead of harvesting mangos and fishing. They benefit because I am the benevolent dictator that makes everything possible. My objection is that it doesn't describe the present system of finance as it exists in the modern industrialized world today. Your extrapolation from the theory begins with a number of assumptions I believe to be contrary to fact. Which brings me to your balance sheet post from the other day. I'll augment my questions from an earlier essay of yours at http://www.geocities.com/socredus/wray-functional_finance.txt Most of us were informed that HPM enters the system through Fed open market operations: When it purchases a bond it injects HPM; when it sells a bond it drains HPM. We were informed that when the Treasury spends it is spending from an ordinary checking account into which it has to make deposits to cover its checks, that when it writes checks in the amount of X, it must deposit proceeds from taxes plus Treasury bond sales that equal X. If that is the case, Treasury fiscal policy will have no effect upon the quantity of HPM. But now you inform us that that's not the way it works, that when the Treasury writes checks it is doing the same thing the Fed does when it writes checks--HPM is being injected into the system. The thing that makes this possible is that the Fed and not a commercial bank keeps Treasury's account. It seems to me that the checking account--which does in fact exist--would have to be in an unlimited overdraft account which neither pays interest on positive balances nor charges interest on negative balances. I'm not so much concerned with the technical restrictions but the actual practice of the Fed and Treasury vis-�-vis each other. If overdrafts are allowed and the Treasury actually overdrafts with an increasingly negative balance, the amount of overdraft would indeed be injection of HPM into the system. Or, if there is an increasingly positive balance, HPM is being drained from the system. If, on the other hand, the arrangement between Fed and Treasury is such that Treasury is expected to roughly balance deposits against checks, the net effect upon HPM would have to be nil because each check Treasury writes is balanced by an equal deposit and each deposit is matched by a check. This would seem to be the case by your own admission or so it seems to me. From the paper cited above: ***>In practice, the Treasury tries to end each day with a deposit [balance] of $5 billion.<*** So my first question to you is: How do you explain this apparent contradiction? Bill ------------------------------ The context of the above excerpt: ***>The bonds are purchased by the Fed and the Treasury; the purchase restores reserves and cash. (Sales of bonds between private sector entities cannot add reserves or cash; they simply shift reserves and cash from one "pocket" to another.) Note that if the Treasury refused to buy the bonds (that is, refused to retire outstanding debt), then only the Fed would be left to buy them. This is why any sustained surpluses must be met by Treasury retirement of the debt, for otherwise the Fed would accumulate vast holdings of Treasury debt (on which the Treasury pays interest) while the Treasury would hold huge deposits in its checking account at the Fed. (In practice, the Treasury tries to end each day with a deposit of $5 billion.)<*** -- I have a question that is trivial compared to my first question regarding the assertion that Treasury pays interest on that portion of Treasury debt held by the Fed. It is my understanding that while previously this was true it is not presently the case. It is my understanding that interest earned on Treasury debt is rebated to Treasury net of expenses and other earnings. What is the actual situation? Bill --------- Original Message --------- DATE: Mon, 11 Aug 2003 09:00:48 From: "Wray, Randall" <[EMAIL PROTECTED]> >chris >cartalism is simply trying to "achieve" an understanding of how money works. once >this is achieved, one can then try to resolve econ and social problems. > >bill >(if it was indeed you who made the silly claim--it is hard to follow the >back-and-forth): saying that "in the wrong hands" the state theory of money leads to >totalitarianism is as silly as saying that in the wrong hands literacy leads to same. >there is no point in talking to someone who tries to tar the theory in such a manner. > >randy > ____________________________________________________________ Get advanced SPAM filtering on Webmail or POP Mail ... Get Lycos Mail! http://login.mail.lycos.com/r/referral?aid=27005 --^---------------------------------------------------------------- This email was sent to: [EMAIL PROTECTED] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html --^----------------------------------------------------------------
