In the preface to the forthcoming Festschrift to Alain Parguez, Mosler argues that in the mid 1990s he thought, “the theory of the monetary circuit was correct to the point of being entirely beyond dispute”. However, he also argues that the theory “could be further enhanced by starting from the beginning”. This beginning for Mosler was of course why the workers accepted the units of a currency as payment for their labor services. His answer (which is quite well known among heterodox economists by now) was that imposed debts denominated in that unit of account, give it's units value; in other words taxes.
This is an important part of the story, but we would argue it is in fact not the beginning. The true beginning to the circuit is the question of where people and organizations gain the ability to tax.INET
Fiscal Systems, Organizational Capacity, and Crisis: A Political Balance of Payments Approach
Nathaniel Cline and Nathan Cedric Tankus
15 comments:
Tom,
"It's" should be "its"
sorry to be pedantic, but these things are important.
sorry Y, my error. it was originally written to guide what i was saying, so i didn't structure/edit it like it was a written piece.
also Tom: I think the link is missing.
Link fixed. Thanks.
Just a quick thought, not thought through. Read the link briefly, it seemed to agree with my thought post-abstract that everyone accepts authority from somewhere at some point.
Article seemed to make same point but went into detail which I didn't really take in because I'm waiting on something.
However, it seems to be the difference (which you could argue is no difference) between institutional acceptance (authority) and functional acceptance (taxes).
Nathan,
One thing I would like to see overlayed in this historic analysis, is the metallic basis for these different national 'currencies'.
('Metallic currency' actually being an oxymoron...)
These different nations may have had different 'currencies' but they were all 'derivatives' of mass measures of certain metals.
Everything you write here takes place mostly within this 'metallic' context.
Which of course we are no longer under....
So this transition back to true 'currency' or what the Ancient Greeks termed 'nomisma' in the 1933/1971 US actions always has to be kept in mind...
They are different systems so you have to analyze different systems separately. You can only compare them 'together' in a report perhaps, but cannot conflate them.
Like analyzing propeller driven aircraft vs jet propulsion.
You wouldn't look back at aviation history and just say 'at some point, aircraft just got faster' without noticing/analyzing the difference in propulsion systems.
At least this is the way my brain works....
RSP,
Matt, in international context the currency is constraint by the international demand for paper, import credit (influenced by exports, international politics and treaties, expectations, etc.) and ultimately political space (derived from a number of factors, from military power to capital inter-relationships).
I don't think there is much difference regarding commodity vs. fiat currency dominance in an international context as long as we don't consider it all as a closed system (which it isn't, so we shouldn't). I would take Graeber position here, in the sense that political realities, social context (and directly,
Summing up: there are constraints to currency sovereignty imposed by the international context (as long as an economy is not closed, and needs direct input of resources, goods or services to continue the well-functioning of it's economy). I believe this has been Ramanan point for some time.
Sure, a fiat international system may have wider implications, giving more space to policy instead of the straitjacket of a gold standard, but the very existence of this system is probably a extension of the economic and political context of the time.
There is a point which argues that floating exchange regime make the system stabilize itself (floating regime is of most importance to MMT as we know to consider a sovereign really monetary sovereign). But in practice we know that capital flows, functioning of the international financial system, globalization etc. create frictions and make it possible to build up large instability over time.
(And so we had latin-american crisis , asian crisis, and a lot more other crisis).
Ignacio,
From the paper:
"This system relies on the willingness of foreigners (particularly foreign central banks) to accept dollars. "
When they "accept" them, they set the exchange rate.
Whether they know this or not, the govt CBs set the exchange rate via this process.
Back under metals it was easy, you could calculate "dilution" based on INTEL on how much of the metals a sovereign possessed, divide that by the quantity of paper issued against it... or it they used "lesser" metals and "debased"... this no longer applies.
So today the govts are back to being 'price setters' and it is 'about price not quantity'.
This is from Warren and not many others in the MMT sphere imo who seem to ignore/humor Warren on this assertion of his but I believe Warren is ultimately correct on this...
When an external CB accepts a foreign currency in exchange for it's (oops, I mean 'its' y ;) own, the price in its own currency is the exchange rate... whether they know they are actually doing this or not... it doesnt work this way under metals of course.
wrt the what the Japanese are currently doing wrt devaluing the Yen imo the Japanese govt policymakers are taking advantage of the current chaos within the Obama admin and are helping the Japanese exporters...
We'll see how this goes but if the Obama admin can regain its feet, then US industry will soon get in there and complain and then the Japanese may have to stop it...
or perhaps our economy doesnt have any more an effective level of domestic entities that even care about this anymore (industrial base wiped out) and our industries have actually adapted into taking advantage of the cheaper (really "free" at a national level) Japanese product...
rsp,
iow in the forex market, the depository institutions effectively go to their regulators and say "I have a customer that would like to take a leveraged Yen position at 102 today is that ok?"
Then the regulator says "fine", and hence the exchange rate is set at 102.
Whether they know that is what they are doing or not (ie morons)... that is what is really going on...
rsp,
Seems I eat half of my last comment lol. Something along these lines: " I would take Graeber position here, in the sense that political realities, social and economic (in real terms, resources) context, shape the form of the international monetary system -so we have been fluctuating between commodity-driven international currency systems and fiat-driven systems.
Your post: "When an external CB accepts a foreign currency in exchange for it's (oops, I mean 'its' y ;) own, the price in its own currency is the exchange rate... whether they know they are actually doing this or not... it doesnt work this way under metals of course."
It doesn't, and to a point reinforces what I was saying. Over the current regime a situation set in motion can continue to build up to a breaking point. In the metal system yes, there was a bit of flexibility (there was really, even in XVIII-XIX century, it wasn't completely fixed and there was asymmetry, because ultimately was credit driven too, for example the liabilities from Great Britain where not the same than the liabilities from USA), but not as much; so it was more fixed in that sense.
But right now, certain tensions can build over time, but ULTIMATELY will end up breaking.
I'm not arguing with you, we probably agree on the fundamentals. What I mean it's a function of time, more that a qualitative difference. So yes you may have some dynamics at place which can work for 5-10 even 30 years, but eventually if the dynamics don't work things will change or break up. under gold was the same, and even that 'bit' of flexibility allowed for certain problems to build up for a limited period of time.
Ignacio,
As far as the Latin American thing, if they were creating USD liabilities in their systems and leading $NFA flows to the net liability cohorts within those nations got eroded or fell to insufficient rates to service those liabilities, then yes we get a shutdown and liquidations...
So what you would have to do is go back into the data and compare the external system USD liability flow requirements vs. the leading $NFA flows into that system and probably would find that at some point they became inadequate and the whole thing just shut down... as we would expect...
rsp,
I think yes we agree the current system requires cooperation between nations in order to function over the long run...
BUUUUT..... we STILL are no longer just "fighting over the metals" as we did for almost 2,000 years...
and this imo IS progress... whether we realize this or not...
rsp,
Matt, if we hadn't advanced technologically (plus the huge increase in exploitation of fossil fuels) as much as we did in the XIX century and early XX, what do you think our current monetary system (and overall situation) would be?
I think we have progressed a lot because technology and hence productivity increased so much that we can make use of a much more 'inclusive' monetary system (instead of a mainly aristocratic/oligarchic 'exclusive' monetary system), despite what libertarians say.
Take in mind in ancient times this possibility was only open because of slavery and mainly 'closed economies'. Now we have it because productivity and abundance (which ultimately makes some sort of 'democracy' possible).
Personally I believe material relations shape social order (because society is an adaptive complex), including financial and monetary economics, more than the other way around. So 'it all will be good if we continue our drive towards a post-scarcity world', but change requires some pains sometimes (old thinking and it's wrong diagnosis of the situation has to die) unfortunately. But if the material conditions change, we may see a reversion towards a 'metallic' system (or something like that by other name) which will drive us to conflict and destruction of progress. (That's why we should try advance in the direction of progress making use of the material conditions we have right now, before it's too late.)
BUUUUT..... we STILL are no longer just "fighting over the metals" as we did for almost 2,000 years...
and this imo IS progress... whether we realize this or not...
Metals lead to mercantilism and mercantilism leads to war. War means that govt need to drop the metal standard to self-finance. Sel-financing leads to issues and metals are adopted as the solution. Repeat cycle.
Take in mind in ancient times this possibility was only open because of slavery
Right. Slaves were the machinery of the Agricultural Age and "factory rats" (this is what management called workers) were an essential part of the machinery of the Industrial Age.
As we transition into the Information Age and knowledge workers, with automation and robotics replacing field and factory workers, and artificial intelligence a lot of mid-level workers, then a whole new paradigm becomes possible.
With a sufficient level of development of AI, markets become superfluous in distribution. With the development of fusioni as an energy source, cheap energy will become abundant. This is not longer science fiction. Some who are alive today will live to see it.
Ignacio,
I see a change happening around 1700 years ago to the metals... which wasnt there before... something happened around that time maybe it was like you surmise a significant change in a 'material relation'...
Well for sure our "relationship" with the metals changed, but was that itself the change or was there another material change that then drove the zealousness for the metals?
It may be that the only "material relation" that changed was our relationship with the metals themselves... if you could believe that...
Here is a post I did a while back where the Prophet Isaiah documented what transpired in ancient Babylon where their direct "material relationship" with both gold and silver led ultimately to their destruction by the Medes who "did not account in silver and in gold they are not delighting..."
http://mikenormaneconomics.blogspot.com/2012/10/the-fall-of-babylon-and-babylonian-unit.html
So for the Babylonians, it looks like it was simply the basic 'material relations' with these metals that DID THEM IN... they basically subjected themselves to the metals instead of each other and that was that...
rsp,
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