"Modern money" is state money. Abba Lerner explains the "trick" by which a state creates its money.
Imposing taxes and accepting its own liabilities in payment creates demand for the currency. In this sense, state money is "monopoly money" in the truest sense, since modern have a monopoly on the issuance of currency, regardless of whether or how they choose to exercise it.
Monopolists are prices setters rather than price takers. Hence, the value of the currency is established based on what the state is willing to pay in markets to move private resources to public use.
Or the state can choose to fix the price for it to exchange a real resource for its currency, such as fixing the conversion rate for gold under a gold standard. A state can also choose to peg the value of its currency to another currency. If the state fixes the price, then it loses currency sovereignty, since it must obtain the good to meet demand for conversion.
A state is a currency sovereign if and only if it lets its currency float and doesn't create obligations that are out of its control, such as borrowing in a currency that it does not issue and must obtain to meet its obligations. Then the state becomes a currency user of that currency.
Presently, the one price that most modern states that are currency sovereigns is the own rate of the currency (along with the discount rate) that is set by the central bank. MMT proposes setting the own rate to zero and providing liquidity as necessary for the payments system to clear. This obviates the ned for a discount rate.
MMT proposes anchoring the price of the currency to the value of a unit of unskilled labor (MMT JG). The price anchor sets the MMT JG proposal apart from other job guarantee proposals that do not anchor the currency, which risks inflation if the wage is indexed, for example.
4 comments:
I completely fail to see any meaningful sense in which JG “achors” prices. If JG is implemented and demand gets excessive, prices will still rise excessively.
I completely fail to see the value in Ralph’s reasoning which avoids explaining why demand would get excessive and production wouldn’t keep up with demand.
If the moon fall down on your head you might get a dent on it. Why the moon would fall down is not important.
S400, The "JG anchors prices" idea is presumably the idea that if demand gets excessive, JG will somehow magically stop prices rising too far and too fast. There is no obligation on me to explain exactly WHY demand might get excessive. However it's widely accepted that that's a possibility and moreover that it actually happens. For example incumbent politicians have a motive to implement excess demand just before an election so as to make it look like everything is great.
That is not what the JG is about. Its a Job buffer instead of a unemployment buffer. And as such it’s anchors the price of laybour at the bottom. No one claim that JG will stop a extreme stupid excessive demand done by anybody.
“There is no obligation on me to explain exactly WHY demand might get excessive.”
Of course there is, since YOU bring it up as a problem and claim it be something that might happen.
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