A note on this blog

This is not really a blog – it is more of a collection of some views & early stage working papers on some topics that I view as important, generally economics recently for reasons outlined here. So it is not a priority to regularly post. I have been busy lately elsewhere but still hope to further develop the ideas here, and thought it better to have them online in case they are of interest to anyone, and also to get feedback.

Cheers,

Clint

Small c chartalism, sovereign money, & public policy space v. private profit space

There is a high degree of disagreement, even within heterodox economics,  on the meaning and relations between monetary terms such as exogenous, endogenous, vertical, horizontal, chartal, monetarism, state, fiat, inside, outside, what money things are, is money debt, whether state money can be considered exogenous and on and on.

Part of the problem is that some try to define concepts through identifying historical examples, others through defining “ideal types” of the concepts and then relaxing or mixing these pure definitions to match real world systems, while still others define concepts based on the use of the words by past writers.

The degree of disagreement is so great as to pose a seemingly insuperable barrier to discussion between anything larger than the smallest of in-groups.

Not only is there immense disagreement on definitions of terms between schools of thought (understandable) but significant divergence of definitions and usage within heterodox and Post-Keynesianism (circuitiste, horizontalists, structuralists, Basil Moore, etc etc) and even within the various branches of these.

Just one example from comments on the last post: Ralph Musgrave writes

“First, I’m bothered about your use of the words fiat (as is Tom Hickey)…My Oxford Dictionary of Economics starts its definition of ‘fiat’ as follows. ‘Money which has no intrinsic value, but has exchange value because it is generally accepted.’ On that definition, central bank created and commercial bank created money is fiat. Thus your claim that ‘we do not have a true fiat currency’ is not correct: our existing system is 100% fiat.”

Yet Wray clearly distinguishes between fiat and bank credit-money, the latter of which

“can be thought as a type of ‘leveraging’ of fiat money” (Wray 1998, 111)

(Later Wray doesn’t even see modern money as fiat at all apparently;  he writes that

“The state’s money is not ‘fiat,’ but rather is ‘driven’ by the sovereign ability to impose tax liabilities…”

{Wray 2007; note, however, that the state imposes taxes by fiat}).

 The Way Forward

I think the only way to even begin discussing these issues is to agree on stipulative definitions that are based on ideal types rather than hagiographic discussions of past works. The latter is a prescription for factionalization; the former is a path to consensus and clarity. In such a complex and contested realm,  stipulative rather than descriptive and etymological definitions are needed. Define pure examples of a concept (even if they never existed) and when discussing mixed systems, just say so.

Example

A pure idea of a state theory of money would be to define it as a system where there is only intrinsically worthless currency decreed to be of value by the state, backed by its power to tax.

Alternatively, there can be commodity money.

Either commodity money or state money can be leveraged by private entities.

Separate names could be given to each type of mixed system (leveraged commodity money, leveraged state money).
If you want to call the latter mix “Chartalism” instead of reserving that term for a pure state theory of money, fine.

But then there should be some name for a system where the only money that circulates is state money.

A Pure State Theory of Money

Wray writes

“Modern money is state money…There is a pyramid of these liabilities, with nonsovereign money liabilities leveraging the sovereign’s currency.”    http://www.levyinstitute.org/pubs/Wray_Understanding_Modern.pdf

In this context Wray is calling private credit-money “nonsovereign money”.  Now Wray on sovereign government currency:

“In the US, the dollar is our state money of account and high powered money (HPM or coins, green paper money, and bank reserves) is our state monopolized currency. I prefer to expand the conventional definition of currency…[to] include HPM plus Treasuries as the government currency monopoly.” (Ibid.)

So “sovereign currency” is HPM plus Treasuries.

If you want to reserve the word “Chartalism” for a hybrid system of sovereign and nonsovereign money (sort of confusing to have a “State Theory of Money” that includes a massive amount of “nonsovereign money”, but whatever) then a system of “state money only” can be called a sovereign money system.

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On private leveraging: In a commodity money system this may be useful.

However, there is no operational reason why state money needs to be leveraged.

A pure state money system is feasible.

MMT and Bank Credit-Money

I think part of the lack of emphasis in MMT on the (negative) role of private bank credit-money in our leveraged state money system stems from earlier bouts with non chartalists, especially metallists, who wanted to prove that money arose privately, and not from the state. As a result, chartalists have a natural tendency to downplay the role of private money in general, including privately created credit-money. Chartalist literature frequently (and often gratuitously, almost a tic)  turns to discussions of metallism. Simultaneously, in highlighting a state theory of money, chartalists needlessly minimize the utterly dominant role of private banks and private credit-money creation for many centuries, leveraging for private gain both commodity and state money in different places and times  (A pernicious dominance that I think vestigial in the current system, and should be excised). With stipulative rather than historical,descriptive definitions of a state money theory, one can recognize the role of private money both now and historically, without weakening a State Theory of Money in the least.

Note – A similar dynamic is evident in Bill Mitchell’s rejection of Full Reserve Banking, where he associates FullRB with the gold standard and Austrians (and says it would be deflationary, a peculiar thing to think considering a sovereign government can always issue currency, and would simply replace existing credit-money with state money with keyboard strokes), when there are plenty of arguments for stopping private credit-money creation that have nothing whatsoever to do with the gold standard or Austrian beliefs.

Sovereign money and public policy space versus private profit space 

There are good reasons to want to remove vestigial private-money creation from state money that have nothing to do with past state money v. private money discussions, debates on metallism etc.

It is hard to understand why a state system of money with private leveraging (a “leveraged state money system”) is somehow more desirable than a system of state money only, a true monopoly by sovereign money. MMT never tires of (correctly) saying that a currency issuer is always solvent. So why is there a need for private leveraging, when the state can always fulfill the money-creating role directly rather than expansion by private leveraging? (the investment and credit purposes of banks are easily carried out with no new credit-money creation).

Éric Tymoigne, in “Chartalism, Stage of Banking, and Liquidity Preference,” writes

“The demand for money-things…ultimately rests, because money-things are debts, on the capacity of their issuers to make them scarce. For the private sector money-things, this means the capacity of the issuers of money-things to make profit…” (Tymoigne 2005, 12).

What purpose is served by letting private entities profit from the public good that is sovereign money? The sovereign cedes policy space for public purpose to private space for private gain. Needlessly and inequitably.

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Tymoigne, Éric, 2005 “Chartalism, Stage of Banking, and Liquidity Preference”

Wray, L. Randall, 1998, Understanding Modern Money

Wray, L. Randall 2007 “Endogenous Money: Structuralist and Horizontalist” Levy Institute Working Paper No. 512

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[This post is written partly in response to comments on https://clintballinger.edublogs.org/2013/01/03/mmt-can-address-operational-realities-or-analyze-a-chartalist-system-but-it-cannot-do-both/]

 

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