Alexander Douglas — Different Theories of Fiat Money, with Balance Sheets

Hyman Minsky said: ‘Discipline your thinking with balance sheets’ (quoted in the new fantastic book by Randall Wray).

My last post seems to have generated a lot of confusion. I didn’t discipline my thinking with balance sheets.

What I was interested in was different theories of how fiat money works. Each of these different theories implicitly proposes a different accounting convention, to explain the operations of spending and taxation by the state. Let me try to lay these out as balance sheets, so that it’s clearer what is being said by each theory.

To keep things simple, I’ve concocted an example in which the state balances its budget. It taxes back the same amount that it spends. Each of these balance sheet constructions is perfectly capable of representing a deficit or a surplus. Right now, that isn’t the point, though I’ll touch on this at the end.

Origin of Specious
Different Theories of Fiat Money, with Balance Sheets
Alexander Douglas | Lecturer in Philosophy at Heythrop College, London