As with most everything MMT, that central claim too is a load of crap. People got used to using bank notes for specie and then went to government schools where economic denialism is taught. Thus, they didn’t notice when the essential phrase about being redeemable in gold/silver started to be left off the notes and when the coins stopped being silver and became copper. The government imposed sales and exchange taxes on the use of other forms of money such as gold, silver and foreign money. That is what keeps people using U.S. fiat inflationary funny money. Absent the taxes on the sales and exchanges of gold, silver and foreign money, people could easily use other more stable forms of money and then exchange their good money for U.S. fiat funny money at the last possible moment to pay their U.S. taxes.
Note the lame to non-existent defense of their central claim by the MMT commenters.
There is also the point that if the government just created a fiat currency from thin air, without the historical basis as commodity currency, even declaring it necessary to pay taxes wouldn't work. There would be no rational way to ascertain the value of the new fiat currency. In other, simpler, words - people would pay no tax because the new currency would be valueless to start with.
ReplyDeleteYou are right. Further, the government could decree that all taxes must be paid with 85 pound sacks of belly button lint. Absent some additional decree and potential punishment, there would be no reason why anyone would use that for money other than for the satisfaction of the tax debt.
DeleteJust saw this post at an MMT blog. It actually finally made sense to me.
ReplyDelete-------------------------
If you go into debt, it is because you have borrowed money to do something, and you now owe money. To pay it back you must cut your expenses and use what you’ve saved from doing that to start paying the debt; or you can somehow earn more money and use that surplus to pay off the debt. To do all this you need to be receiving dollars from an income stream, or from pulling money out of a savings account. Let’s look at the accounting: your debt is a debit on your spreadsheet, and it is balanced by someone’s credit on their balance sheet. Notice that no new money is created here; it just changes hands.
Let’s look at your state or local government: if they need money, they either tax their people or they issue a bond and people buy them. The government will eventually pay it off with interest. How will it get the money to pay it off? By taxing or issuing newer bonds. No new money is created in all this. It just changes hands.
Let’s say my business is doing great. I make a profit. Where did the money come from? Typically, from sales. From my customers’ accounts into my accounts. No new money is created in all this. It just changes hands.
So where does all the money–every single dollar–circulating in the private economy, including the local and state governments, come from? It necessarily comes from the Federal government, when it “spends” dollars into the private economy. The government has all kinds of projects and needs. To supply these, it turns to the private sector and buys goods and services. Where does it get the dollars to buy all that? It creates them as computer-created credits in the private suppliers’ bank accounts, typically via the private banking system. So true is this, that if you examine the accounting, you will see that the total Federal deficit necessarily equals the total quantity of assets in the private economy–including international accounts. The spending of one dollar by the Federal government is a tally in the debit column, and it is necessarily balanced by an equal amount in some private account.
Can the government spend without limit? Yes it can, in the sense that it cannot “run out” of money. No, it can’t in the sense that if it did so, the private sector would soon show signs of an inflationary situation. This is the function of taxes. Taxes are there to remove money. The government does not “need” the dollars it taxes and which it created in the first place. It removes them so as to reduce excess spending power. The entire system is therefore a tax-driven accounting system. Money is not “thing.” In reality it is essentially a unit of account that enables us to conduct complex transactions.
Can this system–like any other human contrivance–be abused? Of course it can. Our is being abused. Our tax structure makes no sense; much government spending benefits interests that go against the public weal, and so on. Economics is also a field where fools and ignoramuses flourish and vent heated opinions and also seek votes; where ignorant and mentally lazy people make stupid and inept comments regarding matters they do not understand because they haven’t taken the trouble to study them. C’est la vie. It takes all kinds– “the dogs bark, but the caravan passes.”
There is much more: so please go read Mosler’s 7 Deadly Innocent Frauds. It’s a free download at his site. Go and read Stephanie Kelton, Randall Wray, and the others. Read the serious material. There is a ton of serious material available. Please don’t clutter up these blogs with inept remarks. Read and study and assimilate the material first, then contribute to the discussions, if you can; otherwise, there is no harm in being a learner.
I’ve been long aware of Warren “Hut Tax” Mosler and the grisly MMT worship of the vicious hut tax.
ReplyDeletehttp://tinyurl.com/99cndbw
I’m surprised that MMTers don’t celebrate the Belgians chopping off of the hands of their rubber tree workers and their children as a wonderful example of how the government could get a society to use the chopped off hands of little girls to be used as money.
http://www.flickr.com/photos/bob_roddis/5066625414/in/photostream/
You have been aware of MMT. But have you atudied it? As I understand it, it is basically a description of monetary operations. A description, and not a prescription. Surely you coincide in your descriptions? The MMT proponents may vary in their prescriptive arguments, but all agree on the description of monetary operations, and which is an esoteric subject in our culture.
ReplyDeleteI fully agree that the hut tax is ugly--it is not something Mosler approved of, but rather a historical fact that perfectly illustrates how the fiat system is tax-driven and government imposed. But, Bob, the issue is not the morality of the fiat system. The issue is the accuracy of the description given by MMT. If you are arguing prescription, that is one thing, and it involves our values and philosophy, but arguing about descriptions is a question of accuracy of observation and can require a detailed knowledge.
Another thing: the example you use, which is grisly indeed, could never be used as a fiat currency--it would actually be a convertible currency, like gold--because the whole point of a pure fiat system is that the unit of account must be intrinsically valueless, a token; it is like a point in a soccer match or like a ticket to a concert or a train ticket; in fact it is a mental conception or a convention, an abstraction of sorts. It is a unit of account. The point of the hut tax was to get productive labor--that is the element that leads to wealth, The tax was--and is--a coercive device, true. All laws are coercive in a sense. This is what the libertarians detest; but even when we had a gold standard taxes were coercive, after all. A convertible currency is another concept, with its own pros and cons and limitations; it is still tax-driven and coercive, proof being that if you don't pay taxes you go to jail now or when there was the gold standard. But in the convertible system taxes fulfill a different function than in a pure fiat system.
There surely are other ways to conceive of accounting for transactions in a complex industrial system than the fiat system we have, but this is what we have, and MMT describes it accurately.
It's as if you were objecting to the description of gasoline powered engines because of a preference for diesel. The worth of one type of fuel over another is one issue; the description of the gas-powered engine in itself is a different issue, as is the issue of the best way to maintain and service such an engine, regardless of whether it is a good way to power or not.
I've read Bill Mitchell's blog, and somewhere he states flatly that he doesn't like our system and he is an advocate of permaculture, and so on. But he is also one of the world's experts at describing the system that does exist in fact, whether we like it or not, and he said he tries his best to explain how this system can be made as useful and beneficial to the many as possible, as opposed to abusing it for the benefit of a few privileged sectors.
And Mosler even goes so far as to say we basically don't need the way our current financial system works. So again, prescription as distinct from description.
Here is an appropos re-post from Bill Mitchell:
ReplyDeleteThe New Economy cannot flourish with fiscal austerity
Posted on Thursday, May 31, 2012 by bill
I often get E-mails from readers – some hostile others more reasonable – telling me that I should stop arguing for more economic growth. The reasoning is relatively straightforward – the Earth is buckling under the rapacious resources demands of the capitalist system and not only is that process likely to be finite, notwithstanding substitution via technological advances, but also in the process of exhaustion the amenity declines. The argument juxtaposes ecological claims with other claims relating to the desirability of the current neo-liberal dominated system which relies, seemingly, on creating more inequality, a reduction in government oversight and allows the worst aspects of the capitalist system to run amok. However, somewhere along the way, the 99% or whatever percentage it is (I think it is substantially lower than 99) miss the boat. The current crisis is used to demonstrate that conjecture. I haven’t time to reply to all the E-mails and I try to provide “collective” replies (which should tell you something in itself) via my blog posts. So today I am addressing that issue. The message is simple – I am very sympathetic to localised, new economy-type collective ways of organising social and economic activities. I support egalitarianism and co-operative solutions rather than competitive, dog-eats-dog approaches. I don’t mind working and giving my surplus to aid those who are unable for whatever reason to achieve the same material outcomes by their own hand. I am happy with consolidation rather than growth. But despite the romantic appeal of all this – as the solution – we have to understand that there is still something called a monetary system and a currency to deal with. Localised solutions are still constrained by the sovereign state they are located in and their fortunes are determined in no small way by the way the currency-issuing government conducts its fiscal policy. There is no escape from that.
Read the rest of this entry:
http://bilbo.economicoutlook.net/blog/?p=19641#more-19641
Very interesting post at Feral Scholar:
ReplyDeleteAll the following at mikenormaneconomics.blogspot.com
“The Greek Scriptures consistently use two different words when referring to things that are most often today falsely conflated and called “money”.
The first scriptural term here, nomisma, which looks like it is a derivative of the Greek word for “law”, nomia, is used only once in the Greek Scriptures.
17 Tell us, then, what you are supposing. Is it allowed to give poll tax to Caesar, or not?” 18 Now Jesus, knowing their wickedness, said, “Why are you trying Me, hypocrites? 19 Exhibit to Me the poll tax currency.” Now they bring to Him a denarius. 20 And He is saying to them, “Whose is this image and the inscription?” 21 They are saying, “Caesar’s.” Then He is saying to them, “Be paying, then, Caesar’s to Caesar, and God’s to God.” (Mat 22:17-21)
The English word “currency” shown here, in the Greek appears as nomisma. Jesus uses this word when referring to the denarius, a Roman metal coin, with the implication that nomisma was a broad term that applied to state currencies that were being issued and taxed for provision of the civil governments of that day. The taxes that were payable in this case to the Roman government headed by Caesar, were payable in a certain unique type of nomisma. It is revealed here that the Roman poll tax was payable in the denarius.
Same post continues:
ReplyDeleteOther types of nomisma were also being used in that day. The scriptures reveal that the Greek drachma and stater were also being used.
24 Now at their coming into Capernaum, those getting the double drachma came to Peter and say, “Is not your teacher settling the double drachma tribute?” 25 He is saying, “Yes.” And, coming into the house, Jesus forestalls him, saying, “What are you supposing, Simon? The kings of the earth, from whom are they getting tribute or poll tax? From their sons, or from the aliens?” 26 Now he averred, “From the aliens.” Now at his saying “From the aliens,” Jesus averred to him, “Consequently the sons, surely, are free. 27 Yet, lest we should be snaring them, go, cast a fish hook into the sea, and pick up the first fish coming up, and opening its mouth, you will be finding a stater. Getting that, give it to them for Me and you.” (Mat 17:24-27)
In this passage we see that some other government authority was demanding tribute, payable in the previously issued Greek drachmas or staters. What specific government entity this was is not revealed (perhaps it was the Herodians), so it is probably not ultimately important, but it is indeed revealed that the government authorities were issuing and taxing types of nomisma. In addition to government issuance and taxation for provision, these nomisma were also being used in general private sector commerce…
The Greek Scriptures depict how nomisma of several types was being lawfully issued and taxed for government provision; and in addition, those outside the government were using these same nomisma in commerce and to fulfill savings desires.
Then we come to the other word in our study here, argurion which is the Greek word for “silver”, the metal.
This word is never used in the Greek Scriptures related to payment of a government tax.
Argurion is used when describing transactions or commerce among those of the House of Israel, and in specific instances relating to the provision of presents or offerings at the Temple.
2 And He commissions them to be heralding the kingdom of God and to be healing the infirm. 3 And He said to them, “Nothing pick up for the road, neither staff, nor beggar’s bag, nor bread, nor silver, nor have two tunics apiece. (Luke 9:2-3)
The argurion is dealt with solely in measures of weight.
24 Now, at his beginning to settle, one debtor was brought to him who owed ten thousand talents. (Mat 18:24)
15 Now they weigh for him thirty pieces of silver. (Mat 26:15)
Nomisma is never weighed, it is counted…
So we can learn from the Greek Scriptures how in the days of Jesus ministry, the civil government of Rome was running what we might call today a state currency system, using the issuance and taxation of quantity measures of nomisma to both provision the government and facilitate commercial transactions and savings. While the religious authorities of the House of Israel used weight measures of argurion in certain transactions related ideally and primarily to religious procedures and the operations of the Temple.
The two terms nomisma and argurion are never conflated or used interchangeably in the Greek Scriptures, because they are logically two completely different things that have no commonality. Nomisma has nothing to do with argurion.
And finally:
ReplyDeleteThe system utilizing nomisma was mandated out of the lawful authority of civil government, while the system utilizing argurion was mandated by the lawful authority of the religion of the House of Israel. Completely separate earthly authorities…Which of these authorities is in control of the systems we operate in the economies of the west today? It seems like it is a chaotic false misguided conflation of both earthly authorities, that results in systems that simply cannot deliver just and righteous economic outcomes.”
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Alexander del Mar on the Ages Old Monetary Conflict
Key excerpt from del Mar’s book ‘History of Monetary Systems’ (c.1895) that comments upon what I view as a thousands of years old conflict between forces that see “money” as a lawful human construct, and forces that see “money” as otherwise. From the Preface:
If in view of the existing monetary conflict, the reader should be led to inquire whether this is a ” monometallic” or ” bimetallic ” work, the answer is, It is neither. These terms, and many others employed in the monetary literature of to-day, the author regards as misleading. They involve doctrines which are fallacious, and defeat a correct comprehension of this difficult subject, by pro- moting the discussion of false issues, or the adoption of make-shift or mischievous measures. Monometallism and bimetallism both imply that money consists of a metal or metals, and that this is what measures value. The implication is erroneous ; the theory is physically impossible. (Value is not a thing, nor an attribute of things; it is a’ relation, a numerical relation, which appears in exchange.) Such a relation cannot be accurately measured without the use of numbers, limited by law, and embodied in a set of concrete symbols, suitable for transference from hand to hand. It is this set of symbols which, by metonym, is called money.
In the Greek and Roman republics it was called (with a far more correct appre- hension of its character) nomisma and nummus, because the law (nomos) was alone competent to create it. The number of the symbols may be limited, but rudely ; the limit may even — though equitably it should not — be left to the chances of conquest or mining discoveries, still, repeated experiments prove that it is the number of the symbols that definitively measures value, not the quantity or quality or merit of the materials of which they may be composed,…
This is quite a forceful logical and mathematical argument made by del Mar that properly, at least here in the West, “money” is solely an authorized legal construct used for exchange. But many people today, even though they live here in the West, simply WILL NOT ACCEPT THIS, and zealously cling to the non-Western beliefs that “money” is either properly thought of as a “debt” of some sort or otherwise and more popularly a weight of a metal.
—-
One of del Mar’s important contributions was his ascertaining that gold never pays from the point of view of society as a whole. That is, the “cost of production” is always greater than the value of the metal. This was even true of the Comstock lode, the greatest “gold strike” of the 19th century. Writers on money have been consistently confused in this, supposing seigniorage to be the difference between the monetary value and the commodity value (cost of production) of the money token. In reality, seigniorage was simply the sovereign’s price for monetizing the metal. Since no sovereign post-rome could effectively control the supply of precious metal commodities, they lost doubly as they began charging lower fees to try to bring more metals into their mints.
There's an aspect of MMT where they claim to provide a unique description of the various squirts of new funny money into society by the illegitimate central bank or treasury. That's a factual allegation. They then make a ton of unsupported and long refuted theoretical claims about how new funny money is both necessary AND sufficient to create prosperity. MMTers are completely oblivious to the poverty and depression inducing results of fiat funny money as it inevitably distorts the price, investment and capital structure. Their entire phony narrative is based upon a purposeful ignorance of these central economic concepts.
ReplyDeleteAnd yes, I've studied MMT and I'm aware that it is pathetic and totalitarian attempt to "save" capitalism through centralized "control".
http://www.flickr.com/photos/bob_roddis/5560086644/in/set-72157626353319778
I totally fail to see the importance of studying the ancient use of money as commanded by the state other than as a warning against doing so again in the present. Such practices impair the pricing process and induce poverty, business cycles and malinvestment.
ReplyDelete" Such practices impair the pricing process and induce poverty, business cycles and malinvestment. "
DeleteWhat evidence do you have of this?
The Bronze Age Fertile Crescent did fine for thousands of years with state money.
The origins of almost every modern economic practice & institution lies in the temples & palaces of Sumer & Babylon.
The economic models they employed were more advanced & lead to better policy prescriptions than those used by economists today.
Laws such as those of Hammurapi were not a society-wide code but a set of laws governing public sector relations. ‘Cases that seemed obvious and indisputable are not mentioned in the Laws of Hammurapi at all; for example, murder, theft, and sorcery. Such cases were decided in court according to custom,’ evidently by oral common law [but the tapes of these proceedings are mysteriously missing. This doesn't mean that we still don't know EVERYTHING important about Mesopotamia! - B.R.]
DeleteWergild-type fines for manslaughter and lesser offenses typically were denominated in cattle or servant girls, not monetary commodities.
Cattle, slave girls and wives were pledged as collateral or paid as wergild-type fines.
http://cas.umkc.edu/econ/economics/faculty/wray/papers/hudson.pdf
Sounds like a real fun place and time.
I guess that pretty much is the death blow to the Austrian School, eh?
Slave girls and wives as collateral, plus sorcery too!
DeleteMaybe that's the secret of the MMTers. They actually know sorcery and know they can always conjure up $220 trillion worth of adult diaper changing services for senile boomers with a wave of their magic wands.
Perhaps they know how to grow magic trees on which all the free shit grows.
Deleteyou seem to be obsessed with MMT..so afraid of it ?
ReplyDeleteYes I'm afraid of it. It's obviously a vile and unscrupulous ruse to enable the government to extract even more resources from the public for nefarious purposes than is presently possible. The MMTers' pathetic naivete about the true nature of government is shocking. The fact that there are actually people who support MMT is terrifying.
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