Another MMT mind bug.
Why do most MMTers dismiss the notion of 'means of exchange'? The MMT line is that money is a creature of the state. I think that this is inadequate.
What about gold? What about time-sharing systems existing within a normal economy? I think that "means of economic information exchange" should be the correct term. All 'money things' fall into the superset defined by 'economic information exchange'.
Means of Economic Information Exchange
What is it? Any token-system that facilitates the flow of economic information, and can be used to make economic decisions(i. e transactions).
What is a token-system? From an MMT perspective it is defined by everything that is involved in the flow of tokens between economic participants. So that would mean Consolidated Govt. Sector, markets and the 'money supply'. If we are talking about gold, then it really only means the physical gold, markets, and the 'natural sources' of gold.
What makes one token-system better than another?
This is defined by its ability to transfer economic information between participants. This is in both quality & quantity.
Why is state money better than gold?
Generally speaking, it is easier to transfer economic information, it can be manipulated in such a way that maintains reasonably stable prices, prices in a state money system are more indicative of participants wants and desires than those participating in a gold system.
Right, so your saying that it all comes down to a token-system's ability to transfer economic information. Why don't people start up their own currencies?
Token systems transmit the wants and desires of individuals to each other. The overall strength of a token-system is determined by its ability to statisfy wants and desires against the external world. There are individuals within each token system that can manipulate prices greater than others. They may have this power legitimately or not. If adversaries are able to influence the system enough, then they can distort prices enough to obtain more of what they desire. If another token-system is created, then it will most likely threaten this position of privilege. Therefore adversaries will respond in such a way to manipulate prices so that the new currency is threatened. This is generally the reason why new currencies have a difficult time establishing themselves.
Why do you think this is more consistent with empirical observations?
According to the MMT definition of State Money, then a lot of items currently being used to facilitate economic information exchange would be excluded, for no reason. For example, there are time-banks being used in parts of the world, but they are not subject to taxation, or spent into existence like MMT defined currency, so what are they? But what they do facilitate is the exchange of needs & desires between individuals.
What do you define as the optimum?
The ultimate economic output that can be possibly achieved will occur when a token-system most accurately reflects the wants and desires of economic participants.... This would be the hypothetical situation of when everyone can simultaneously communicate with each other, everywhere. It is meant to indicate what is the 'optimum state', not what is actually meant to happen, but what possible token-systems should be measured against.
Why do most MMTers dismiss the notion of 'means of exchange'? The MMT line is that money is a creature of the state. I think that this is inadequate.
What about gold? What about time-sharing systems existing within a normal economy? I think that "means of economic information exchange" should be the correct term. All 'money things' fall into the superset defined by 'economic information exchange'.
Means of Economic Information Exchange
What is it? Any token-system that facilitates the flow of economic information, and can be used to make economic decisions(i. e transactions).
What is a token-system? From an MMT perspective it is defined by everything that is involved in the flow of tokens between economic participants. So that would mean Consolidated Govt. Sector, markets and the 'money supply'. If we are talking about gold, then it really only means the physical gold, markets, and the 'natural sources' of gold.
What makes one token-system better than another?
This is defined by its ability to transfer economic information between participants. This is in both quality & quantity.
Why is state money better than gold?
Generally speaking, it is easier to transfer economic information, it can be manipulated in such a way that maintains reasonably stable prices, prices in a state money system are more indicative of participants wants and desires than those participating in a gold system.
Right, so your saying that it all comes down to a token-system's ability to transfer economic information. Why don't people start up their own currencies?
Token systems transmit the wants and desires of individuals to each other. The overall strength of a token-system is determined by its ability to statisfy wants and desires against the external world. There are individuals within each token system that can manipulate prices greater than others. They may have this power legitimately or not. If adversaries are able to influence the system enough, then they can distort prices enough to obtain more of what they desire. If another token-system is created, then it will most likely threaten this position of privilege. Therefore adversaries will respond in such a way to manipulate prices so that the new currency is threatened. This is generally the reason why new currencies have a difficult time establishing themselves.
Why do you think this is more consistent with empirical observations?
According to the MMT definition of State Money, then a lot of items currently being used to facilitate economic information exchange would be excluded, for no reason. For example, there are time-banks being used in parts of the world, but they are not subject to taxation, or spent into existence like MMT defined currency, so what are they? But what they do facilitate is the exchange of needs & desires between individuals.
What do you define as the optimum?
The ultimate economic output that can be possibly achieved will occur when a token-system most accurately reflects the wants and desires of economic participants.... This would be the hypothetical situation of when everyone can simultaneously communicate with each other, everywhere. It is meant to indicate what is the 'optimum state', not what is actually meant to happen, but what possible token-systems should be measured against.
Time for a new kind of money
Since I have ‘joined’ the MMT community, I have watched as MMT has discussed headlines and challenged the contempory economic thought. But one thing has frustrated me, the lack of creativity. As the world plunges into chaos I am surprised by the lack of creative solutions offered by the MMT community. This to me is an opportune time for MMT to show the world an alternative to the current arrangement.
As stated earlier I have argued that token-system is best able to transfer the needs and desires of participants will prevail. This in itself is something that can be offered to the OWS protestors.
I suggest that MMTers work towards a new token-system that can be offered to OWS protestors as a way for them to exchange their needs and desires. Ultimately I think that this system will either force the current system to reform itself to survive or will become inferior.
What is needed?
– A system to transmit tokens. – A system that manages the creation of tokens. – A system that facilitates the exchange of prices. – A system that measures the needs & wants of individuals.
Why will it work?
Because it will transmit needs & wants better than the current system. There are many different strategies to gain acceptance. A pool of donations could be used to support an exchange rate for the token-system. This will give the token system some underlying support while it gains acceptance. A job guarantee like system could be used initially to disburse initial funds into the economy. This could be used to coordinate the efforts of OWS. Sooner or later businesses will start to see the participants of the OWS as a labour force. They will then start to purchase tokens, which will create a pseudo-permanent state of support for the currency.
At this point, it is likely that the supply of tokens will need to be inflated. This situation is good for everyone. People participating within the OWS will start to gain jobs, the current lack of expansion in money supply of U. S.D would be somewhat offset by the expansion of the OWS token-system.
The token-system will then most likely start to become threatened by those with a vested interest of the U. S.D. The will need to increase spending in order to support their attack on the token-system or to encourage businesses to use U. S.D. Either way even if the token-system is defeated, unemployment will be fixed. There will be a population of individuals educated in MMT, and this group will act as an inoculation against any attempts by powerful morons to drive up unemployment.
Consequently it will be imperative that legislation be changed to allow, groups within the U.S.A to create their own free-floating currencies.
Immediate Suggestions
-Warren, Mike, Bill, and anyone else, should immediately issue 10,000 tokens and disburse them into the OWS movement. At the same time, they should offer at some cost to be paid in those credits, the opportunity for OWS to post on their blogs.
-Then, the Job Guarantee could be formed by paying those OWS participants that promote verifiable material that promotes the MMT agenda.
-After a series of donations have been collected, this could be used to fund a lottery/payment of which tickets can only be purchased using the OWS credits.
25 comments:
By definition prices are suppose to represent the needs & desires of the community. When prices are optimal, that is they are a true and complete representation of wants & needs, THEN resources will be perfectly allocated. This results in maximal production of said economy.
This is in response to a question on Warren's blog.
I will be delighted to assist Warren, Mike, Bill, and anyone else handle the slew of legal
paperwork (registration, annual filings, federal and state tax payments, etc) involved with going into the barter exchange racke-- I mean-- business.
However, like the IRS itself, I will insist on being paid in US Dollars.
Barter exchanges have their own unit of exchange, usually known as barter or trade dollars. Trade dollars or barter dollars are valued in U.S. currency for the purposes of information returns. Trade dollars allow barter to take place between parties when one party may not have a simultaneous need or desire for the goods or services of the other members. Barter exchanges act as the bookkeeper for keeping track of trade dollars that participants accumulate. Earning trade or barter dollars through a barter exchange is considered taxable income, just as if your product or service was sold for cash.
http://www.irs.gov/businesses/small/article/0,,id=113437,00.html
BTW, Thanks Tom :)
@Beowulf
Where do you get all your positivity from?
What happens if multiple systems of similar character start? Are they going to stop all of them? Even if they do, the gain would have already been made and would justify nearly any cost.
Shaun, This was a recent self-titled paper that Randall Wray wrote on "Money"
http://www.levyinstitute.org/pubs/wp_647.pdf
He first looks into sort of "What is 'money'" and then addresses the issue of "How do you get someone to accept it?"
As far a getting someone to accept it, it seems we have always had to rely on the coercion of taxes with the corresponding threat of jail for non-payment. I dont see how you can get around this.
IOW how do you guaranty that when you have money, and you want to use it to buy goods, that someone who has goods for sale will accept your money?
Seems like if the liability (pecuniary obligation) that backs the "money" ever even in the least falls into question, that system is dead.
And Beo does bring up some interesting legal issues wrt using any type of "script" perhaps even if it was just for an educational exercise (I never thought of that).
Resp,
BTW, thanks Tom.
@Beo
Can I have some of your positivity?
"(I never thought of that)".
Judges hear that one a lot.
:o)
As far a getting someone to accept it, it seems we have always had to rely on the coercion of taxes with the corresponding threat of jail for non-payment. I dont see how you can get around this.
People have and do use currencies that do not require mandatory participation.
Anyways, I agree the genesis component of any currency is problematic. By definition it is circular, so there will always be an element of faith. Nonetheless I think the MMT assertion that taxes are 'always' needed to drive money is inadequate.
I would generalize and say that out of all the possible token-systems that are available to participating economic agents it is in their best interest to use U.S.D, to pay for taxes, because its illegal to use other systems, etc. But notice what constitutes 'best interest', it is the fear element that forces acceptance. People will continue to use such a token-system as long as it is in their best interest. If some other token system comes along and offers better quality prices, the quality of which is good enough to justify the risk of participation, then the optimal solution is to use the new token system.
Creators of a token system must ensure that the quality of transmitted prices are good enough for such a risk. Once that happens, bamm!
Oh boy, I missed this part.
After a series of donations have been collected, this could be used to fund a lottery/payment of which tickets can only be purchased using the OWS credits.
I couldn't begin to count how many state and federal anti-gambling statutes that would violate (there's a very good reason that private raffles or contests always use the phrase "no purchase is necessary").
BTW thanks Tom.
(This is the third time I have tried to post this comment..)
@Beo
What about Australian Law? What about cross posting?
What if the posts were posted in Australia then cross posted in the States? Then what?
Furthur what if the currency was created overseas?
I don't mean to be such a hardass Shaun, I appreciate your enthusiasm and creativity, I'm stepping on your point because you're counseling "Warren, Mike, Bill and anyone else" to do things that may or may not be advisable economically but are most inadvisable legally.
But then I haven't seen the inside of a courtroom since 8:30 this morning, so what do I know? :o)
Assuming Australia regulates gambling and taxes income, then I would consult an Australian lawyer before putting any plans into motion.
What you're proposing is what, under American law, is called a "barter exchange", I forget offhand what the legal threshold is (whether its transaction volume or size) but a foreign citizen operating a barter exchange with US citizen participants will fall under US jurisdiction (don't worry, Australia won't extradite you for US tax code prosecution). :o)
@Beo
If your so concerned about the legal implications, just use bitcoin-like technology.
For example, use raised funds to purchase bitcoins, transfer them overseas, mix them up using cryptographic services and thereby sever any link to the donating parties, give them to trusted anonymous third party, run lottery using trusted anonymous third party resources, pay in bitcoins to recipients of whom the identification is unknown, but is verified that they have lottery ticket.
:)
The technology exists.
For the payment system, once again use bitcoin like infrastructure, that is supported by trusted anonymous overseas third party, I take it most people have mobiles with internet, so they run an app on their phone that handles the necessary transaction processing.
If you really want to, we can ensure that the applications on everyone's phone is running through an anonymous network(tor), which makes extremely extremely hard for adversaries to monitor traffic. This shifts all of the risk to the users, with no link to the supporting parties.
Authorities would be reduced to going around and individually checking everyone's phone, and I'm sure by then it won't be a concern.
Actually I have a simple solution: utilize the bitcoin network.
Have a trusted anonymous agent purchase Bitcoins with money that in no way connects the donators to the trusted anonymous agent.
Then use this money as the basis of OWS money, so use .1 of a bitcoin to create a OWS 10. coin. Setup secondary infrastructure so that normal bitcoins can be validated as OWS coins. Educate people on how to use the system( which would not be much harder than bitcoin itself). Then people are free to use OWS coins derived from bitcoins. And they are verifiable.
voila!
MMTers do not disparage the notion of a medium of exchange. What they dispute is the claim that the systems of monetary exchange that prevail in most countries have evolved from non-monetary barter economies. Instead, they hold that various state powers - most prominently the power to tax, but other powers as well - have always played a role in the acceptance of any form of money, for as far back as we have historical records, and that they continue to play a prominent role. Governments like the US government are the legal definers of the prevailing unit of account and the producers of the physical and electronic tokens of exchange that can be used for making payments in that unit. Governments have typically used their power to establish and preserve a dominant currency, and control over the production of that currency.
That is true even in a system in which money is endogenously produced via bank credit. Banks are chartered by the public and permitted to create deposits through loans that are liabilities for US dollars, not for some other form of money. Thus the public has subcontracted money creation to banks, but still maintains ultimate control. This delegation of authority could be withdrawn at any time via legislative changes.
MMTers have also tended to emphasize the large public purposes that can be pursued by a government that has maintained sovereign control over its nation's monetary system, and have not allowed that control to fall into the hands of either foreign governments or private sector entities.
A private sector scrip here or there is no big problem. But personally, I think the feds should probably put a stop to bitcoin. A monetary system that is best suited for meeting public purposes needs to remain in public hands. Allowing private entities - even diffuse private groups like the bitcoin gang - to erect thriving monetary systems is a threat to both monetary stability and national sovereignty. It is just as much a threat to democratic governance as would be posed by thoroughly privatizing military security, and removing the common defense from public responsibility.
If you believe free markets in everything work best to produce efficiency and stability, through the magic of the "price mechanism" and information signals, then some of these alternate private money schemes might seem attractive. But as for me, I have seen enough of the recent history of private sector finance to think that Minsky and similar thinkers were right: free market capitalist finance is inherently prone to speculation, fragility, fraud, predation and flim-flam. To be bent to serve the public interest, private sector financial concerns need to be tightly regulated. And by no means should they be permitted to establish a monetary system that will compete with the public's monetary system, and that answers only to private whim and free market price signals rather than a well-governed monetary policy.
The tradition of Keynes, Minsky, and Lerner - to which MMT certainly belongs - and laissez faire Austrianism in the mode of Hayek are radically different approaches proceeding from very different views of human history and human nature.
And by no means should they be permitted to establish a monetary system that will compete with the public's monetary system, and that answers only to private whim and free market price signals rather than a well-governed monetary policy.
It ain't the public's monetary system, its the bankers and other morons that own us. What I propose, by definition would restore ownership of the monetary system to the people.
If your so concerned about the legal implications, just use bitcoin-like technology.
That changes nothing. Bitcoin is a barter exchange subject to same US tax laws (and, I suspect, similar Australian tax laws). We talked about this last month.
Bitcoin transactions clearly fall under IRS "bartering income" regulations. If Bitcoin isn't filing the annual transaction report for all US customers with the IRS, this falls into that unfortunate business model called "tax evasion".
http://mikenormaneconomics.blogspot.com/2011/10/video-mike-on-fox-business.html?showComment=1318012501297#c674112174579293023
"give them to trusted anonymous third party, run lottery using trusted anonymous third party resources"
OK, remember lotteries are gambling. I'm not going to waste any more time on this thread but its impossible to imagine anyone would trust an "anonymous third party" more than a govt-insured bank.
It ain't the public's monetary system, its the bankers and other morons that own us. What I propose, by definition would restore ownership of the monetary system to the people.
It would vest more monetary power in people, Shaun, but not in the people. Throwing money production and money systems out into the private sector where they would compete with each other for dominance in the marketplace would have the same result that most other forms of laissez faire competition have: control of monetary systems would ultimately fall into the hands of a few dominant oligopolists who have succeeded in out-competing and fighting off everyone else, and who are motivated by the extraction of profit and the capitalist drive to accumulate and dominate. You think the Fed system is bad. Wait to you see a world in which we are all compelled to conduct our trade in Citibucks, Googlebucks, Wells Fargobucks or Goldmanbucks, whose producers extract large reverse-taxation user fees on the Federal government for the privilege of making Federal outlays in the private moneys that are the only monies people will accept in the corporatism post-government world.
The libertarian dream is actually a nightmare - a recipe for a world run entirely by business enterprises, where one-time democratic citizenries and their democratic governments have been put out of business, and where everyone has been reduced to the role of customer and producer.
@Beowulf
OK, remember lotteries are gambling. I'm not going to waste any more time on this thread but its impossible to imagine anyone would trust an "anonymous third party" more than a govt-insured bank.
Did you know that two people can compare how much money each has to see who is the richest, without either finding out how each has!! And without a third party......
Its called technology.
Yao's Millionaires' Problem
Did you also know that you can prove to me that you know something, without me ever knowing what that something is?!?
Zero-Knowledge Proof
If I were to design an appropriate protocol, then I would probably start here:
Shared Secret
But it is unlikely you care anyway.
You think the Fed system is bad.
Yea, they own Citibucks, Googlebucks, Wells Fargobucks or Goldmanbucks.....
Who ever has control of the money supply has control of nearly everything.....
I still don't understand why we need to change anything in the first place?
What is wrong with the dollar system we have?
And of course I totally agree with Beowulf. Plus as an up-and-coming account myself I can attest to the fact that these barter systems can be an ABSOLUTE NIGHTMARE to manage with the IRS. No thanks!!
I see no reason why we need to re-invent the wheel? Creativity is great but maybe not in this regard? Unless someone has island they own outright and wants us all to move there? And then aren't we just like the Austrians now and Robinson Crusoe?!?!? LOL
Shaun, dismissing or postponing consideration of money as a means of exchange is integral to MMT. Focussing on it ab initio leads to Menger's theory of commodity money & Austrian economics. And then neoclassical & mainstream economics. The key error is in thinking of money as a thing.
Empirically, no human society has ever used "a thing" as money, as the medium of exchange. Menger was utterly wrong. Gold was never used as money - it was just made to superficially look like that.
What has always been used is credit/debt relationships, which BECAME the medium of exchange, became money by becoming transferable. The moneyness of a money, its place in the hierarchy of money depends on the wideness of the sphere of its transferability, which in turn depends on the issuer/debtor. Your & my IOUs - not very good money. Bank demand deposits - the most frequently used, much better. But state money - reserves, currency, bonds is even higher, because more acceptable, when bank debt is not. And among state monies, the dollar is still king, as the pound was in the 19th and early 20th century.
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