The government has the same pricing options with its money of any monopoly supplier of an absolute necessity. An analogy can be drawn, for example, with an electric utility monopoly although taxes give the currency monopolist a tool to regulate demand that the electric utility monopolist does not have.
How does the monopolist price his product? There are two options:
- Set price, p, and let quantity, q, float, or
- Set q and let p float.
The first option is generally preferred, with a gold standard or the proposed ELR program two examples of using the first option.
However, the government is currently employing the second option. It sets a budget that determines q (spending), and lets the market determine p (price level) as all purchases are made at market prices. If the monopolist decides to set q, and let the market decide p, it must constrain q so that demand exceeds q, or, for all practical purposes, the price of its product will fall towards 0. Government constraint of q to control p means using continuous unemployment and excess capacity to maintain price stability. Surely this would never be considered a viable option in running an electric utility monopoly, for example......
The ELR proposal uses the option of setting one price, the ELR wage, paying market prices for other purchases, and letting the total quantity of government spending be market determined.Warren Mosler, Full Employment and Price Stability
With a gold standard, gold can always be considered fully employed as gold can always be sold to the government at the fixed price. Likewise, with an ELR policy, labor can always find a buyer.
(h/t Anonymous from the comments)
Joe Firestone adds in a comment:
The "full employment and price stability paper by
Paul Davidson[Warren Mosler] refers to the govt as the monopoly supplier of *its* money, or *its* currency.
Pavlina's paper refers to the govt as a "money monopolist" of the money it demands in payment of taxes.
Wray has argued in the past that "money" as the unit of account, or "money" as an institution, is a "public monopoly" - and distinguishes this from what he calls the particular "money-thing" such as currency or credit.
Easy to see why people get confused about all this.