Resistance to the Chartalist View of State Money

There is quite a lot of resistance in the MMT blogosphere to the Chartalist theory that the tax obligation underpins demand for the currency. A notable recent example is an interesting discussion at Pragmatic Capitalism. But a similar reaction seems to pop up in many places. The consternation on this point has surprised me in the past. It is not the disagreement over the theory that surprises me, but the strength of the reaction the theory seems to incite in some people otherwise sympathetic to MMT. Lately, a couple of possible explanations have occurred to me.

 
The Chartalist Explanation in a Nutshell

The Chartalist argument adopted by Modern Monetary Theorists is that the government is able to create a demand for its own money by imposing a tax obligation on the non-government. A simple case would be a head tax. The imposition of such a tax would ensure that people in the non-government needed to get hold of the government’s money in order to meet their obligations. They could do so by selling goods or services, including their own labor services, to the government in exchange for the government’s money, or by transacting with others in the non-government who had previously transacted with the government.

Personally, I find this explanation convincing, but that’s not my focus here. Rather, I am interested in speculating on why some people not only disagree but seem to react so strongly against the idea, and perhaps addressing those concerns.
 

Coercion Underpinning State Money

The most common objection seems to be that the Chartalist explanation implies there is coercion underpinning state money. For the viability of state money to be assured, the tax obligation must be enforced, in the last instance through a resort to the state’s monopoly on violence. There is no suggestion that this compulsion is a good thing, although it is probably necessary unless and until we reach a point where people are willing to cooperate voluntarily in the common use of some resources.

What surprised me at first about this objection is that I would have thought many of the people making it – typically in the right-libertarian quadrant of the political compass – would have been in agreement with the view that the state is coercive and prone at times to brute force. But then it occurred to me that two separate issues might be getting conflated, one that is anathema to right-libertarians (the state) but the other which is prized (a monetary market economy). Perhaps what is partly causing the disquiet is a perception that Chartalism implicates money itself in coercion.

If so, I think the concerns can be allayed. First, the theory pertains to state money, not other monies. Second, the effective enforcement of a tax obligation is a sufficient but not necessary condition for the viability of a currency.

Other monies are possible. Even for a private money, state coercion is sufficient. If the private currency issuer (e.g. a private bank) imposes a debt obligation on customers, and these obligations are enforceable, backed by the state’s legal apparatus, that would be sufficient for the viability of the private money.

However, it is also the case that under the right conditions private monies can be issued and accepted without compulsion or a resort to the state’s monopoly on violence. These monies will circulate among active participants in their particular circuits, provided there is sufficient trust among the participants. It is unlikely that one money will become dominant over another in the absence of state compulsion, but provided trust is present, this will be enough to ensure viability of a private money.

What matters for state money, in the MMT view, is not that all other monies are eliminated or that people only use state money. The critical factor is simply that people use state money to the extent necessary to enable the government to transfer the desired goods and services to the public domain, as indicated through the democratic process. The way the government ensures this is by making sure the tax obligation is large enough relative to its own currency issuance and the non-government’s net saving desire in the government’s money.

Of course, in many nations, state money or bank money denominated in the government’s unit of account will be widely used out of convenience. But this is not strictly necessary for the viability of the government’s money. For example, there are some countries in which people largely transact in a foreign currency (e.g. the US Dollar) except to the extent necessary to meet the tax obligation in the domestic government’s money.
 

Resources Precede Taxation

Another objection seems to concern how productivity fits in to all this. For example, in the thread linked to above at Pragmatic Capitalism, there is a comment along the lines that “productivity precedes taxation” and an objection that MMT does not recognize this. The reason MMT does not recognize it is that it is not actually correct.

It would be truer to say that “resources precede taxation”. If the non-government had no resources to offer the government in exchange for the state money, there would be no point imposing a tax obligation. But the non-government always has at the very least its own capacity to work (labor power). The non-government is always in a position to provide labor services to the government.

The level of productivity does not matter in this sense. What the government can command, through its coercive tax obligation, are resources, including labor services. If the non-government possessed nothing other than its capacity to work, the government would be able to command some of this labor time.

This is not to imply that productivity is unimportant. Far from it. But the value of the currency is a monetary concept, and money is a social relation. The social relation, in the case of state money, is in the first instance the government’s capacity to impose a tax obligation on the non-government denominated in its own tokens and specify what must be done to obtain the tokens. Some people give up goods or services, or their own time, in exchange for the government’s money. The value of the currency can be regarded as the amount of simple labor time that must be given up in exchange for a unit of the currency.

Productivity improvements mean that more goods and services can be commanded with a unit of the currency. But no matter how low the level of productivity, state money will remain viable provided the tax obligation is enforceable.
 

Note on Productivity

There is no suggestion that productivity is less important than the value of the currency. Quite the reverse. After all, in principle we could have a highly prosperous non-monetary economy thanks to a high level of productivity, technical knowledge and organization. Productivity is not necessarily contingent on a viable money, and conversely a viable money is not contingent on productivity. They are two different considerations.

It is true that in a monetary economy we try to obtain measures of what really matters – e.g. productivity – in terms of money. But when we do this, what we are really interested in is getting a sense of how productive we are in real, not monetary, terms. We resort to monetary measures for want of a better alternative, because heterogenous material and non-material outputs cannot be added together to produce a true single measure.

Share

97 thoughts on “Resistance to the Chartalist View of State Money

  1. And the reason why your theory has gained zero legitimacy in American politics or even mainstream economics is because the politics that the theory are based on are not remotely compatible with the ideals this country was founded on. But MMTers dont understand the state in the USA (or have delusions of changing it massively). Now that’s the end of the story.

  2. FDO15, I’ll restate for you, since you seemed to have missed Fullwiler’s comment:

    “Staying on point and avoiding ad hominems, it is clear that MMT’ers understand that coercion requires legitimacy be granted by the people. In fact, it’s so obvious that it is ridiculous to even suggest otherwise–a state theory of money requires a state, and a state requires legitimacy. It doesn’t matter if the state “democratic socialist” or “neoconservative,” a state requires legitimacy. End of story.”

  3. Oh please. I’ve seen you all over these MMT blogs. You write the most pompous and arrogant comments of any MMT advocate. Even though you’ve been writing about MMT for 20 years it has gone exactly nowhere. The only people who take MMT seriously are bloggers and it looks like you guys are shooting yourselves in the foot there.

    The politics that MMT are founded on are not compatible with the small government ideas that founded theUSA. You seem oblivious to this fact. Instead, you justify your theory by claiming that the politics should evolve towards the theory. Knapp, Lerner and Minsky all had strong socialist influences. But you’ve developed a theory on their beliefs that are totally incompatible with the foundation of the USA. So yeah, “whatever” is right.

  4. FD,

    http://en.wikipedia.org/wiki/Small_government

    “The origin of the United States lies in the adoption of a Constitution whose advocates favored a strong central government. For example Alexander Hamilton wrote, in The Federalist Papers, “Not to confer in each case a degree of power commensurate to the end would be to violate the most obvious rules of prudence and propriety, and improvidently to trust the great interests of the nation to hands which are disabled from managing them with vigor and success.”[9]
    However, starting in 2009, the Tea Party movement has advocated small government, and has claimed, without evidence, that the “Founding Fathers” also advocated small government, and that the United States had a small government at some unspecified time in the past. In general, the Republican Party is associated with the idea of small government, though no Republican president has ever implemented any of the ideals of small government.[10] One minor party, the Libertarian party, has an ideology of small government. The most successful Libertarian politician in the United States is Ron Paul. Another advocate for small government is Carla Howell”

  5. FDO15,

    MMT isn’t politics. Didn’t you know that MMT can be used by all political parties – from far right to far left?

    Obviously in a democratic state the voters decide how MMT will be applied.

    The problem now is that voters don’t know anything about MMT.
    MMT only shows that TINA is a big, fat BS.

  6. Matt, nice try at revisionist history:

    ” The powers delegated by the proposed Consitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former [federal powers] will be excercised principally on external objects, as war, peace, negotiation, and foreign commerce…The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement and prosperity of the State. (James Madison, Federalist Papers)”

    That’s from the father of the constitution. Nuff said.

  7. Ryan, MMT is all politics. If you haven’t figured this out yet then you’ve been duped.

  8. FD,

    Easy to advocate for “small government” when you are a landed slave owner (must have been nice!) …. what other authority (other than a righteous civil government) could ever forcibly remove your slaves from your custody? (which is what eventually happened) fyi I view Hamilton as the father of the US Constitution….

    Resp,

  9. FD

    MMT is all politics while YOU on the other hand are above politics, preferring to stay above all that and just stick to facts…………….. yeah riiiiiiiiiight.

    Supply side is pure politics, Austrians are pure politics….. economics is pure politics.

    Instead of trying to dismiss something as politics, just address the things it says.

    MMT says;

    The US dollar is issued by the US govt. It does not arise in the private sector and is later lent to the govt………….. any debate here?

    Taxes are not necessary for the feds to have money to spend, they are purely a means to regulate aggregate demand. MMT even says we should lower taxes…….. on EVERYBODY!!……… any debate here?

    MMT says interest rates (for the US anyway) are set by the fed and not market determined……any debate here?

    Lastly MMT says the govt CAN directly hire people and that this likely will be more stabilizing than having a large stable of unemployed people. This is obviously the most controversial tenet of MMT but it is a true statement as far as it goes. Many have aversion to direct hiring ….. ON PURE POLITICAL grounds… but that doesnt mean that MMTs claims are false… or political.

  10. I didn’t say I was above politics. But MMT tries to give this apolitical impression when the reality is that its very politically motivated. Moslers your big defense on the political spectrum and even he’s a democrat. So let’s stop sugarcoating the fact that you’re beating your liberal drums on MMT.

  11. I’m tired of repeating the same point over and over just so you guys can blur reality. [Personal attack deleted.]

  12. Looks like I chose a bad time to take a break from the computer.

    This is a small blog. One upside of this is that the standard of discussion is typically high. A few of the posts in the latter part of this thread look like they belong on a popular blog.

    I will delete personal attacks if and when I come across them in the future. I have done so belatedly with one of the comments up to this point.

    FDO15, I am happy to have you here, but so far you have elected not to add much of substance in your contributions. I’d prefer you either stuck to the topic of the thread or not bother commenting. Thanks.

    Apologies to all that I didn’t intervene sooner.

  13. “On the other hand, States in the real world set a tax rate. ”

    You’ve obviously never paid council tax then. Or the Television Licence fee. Or a fine. Or ordered a passport. Or paid rent on a council house.

    Or done jail for failing to pay a tax. Or paid VAT on your barter transactions.

    All those are bootstraps that force you to obtain state money – and once you do that then the percentage taxes kick in as well.

    It’s like a boiler with a pilot light. The little taxes and the regulations ensure that you can’t avoid the big taxes no matter how hard you try.

  14. Peter,

    Interesting post!

    I have a related question about the Chartalist approach to money:

    What goes in the Chartalist money demand function? (Maybe this function is implicit–I’m sure you know what I mean, though).

  15. Some time ago I used a little story to explain my understanding of how MMT works. As it shows coercion, I’ll put it here, hoping it can be useful.

    Tabitha, Tanya and Toby are siblings.

    Tabitha is a cook and she cooks for Toby. She sells each meal for $X (this is how she gets the money to pay for her dresses).

    Toby is a weaver and he sells his fabrics to Tanya. He sells M square meters of fabric for $X (this is how he gets the money he needs to pay Tabitha).

    Tanya is a dressmaker. Tanya sells dresses to Tabitha. Each dress costs $X (this is how Tanya gets the money to pay Toby).

    One day, Toby lost the only existing coin: a gold coin with a face value of $X.

    As a result, they could not trade: they could not barter directly; they could exchange goods indirectly, but after Toby’s gaffe, nobody trusts him anymore.

    They are unemployed and miserable, although they keep all the stuff they always had: Tabitha still has her pans and food; Toby lost the coin, not the weaving frame; Tanya’s sewing machine is still there.

    So, along comes Uncle Sam. Seeing his nephew’s and nieces’s predicament he devises an idea: he takes an old piece of paper from his pocket, writes “face value: $X” on it, signs it and hands it over to Toby with the following warning:

    “In a year’s time I’ll return and I’ll demand my paper back. I don’t care who holds it, as long as I have my paper back. If nobody has it…” and he shows them an Uzi submachine gun, while staring at them in a cold, manic way that shills their bones. After that, Uncle Sam turned and left.

    Toby clutches the accursed piece of paper with both hands, as he starves.

    Tabitha, who doesn’t have much faith in Toby, offers him a meal in exchange for that useless piece of paper with “face value: $X” written on it.

    Initially Toby is reluctant, but eventually, forced by hunger, he decides and gives her sister the paper and eats as he always had.

    Tanya offers Tabitha a new dress (don’t get me wrong, she trusts Tabitha, but still feels safer with the paper in her own hands). Tabitha was craving for a new dress, after all this commotion. Now she has one and feels happy again.

    Eventually, Tanya needed more fabric and bought it from Toby, paying him with the piece of paper.

    Uncle Sam never had to come back; the siblings still trade to this day, but they make sure the piece of paper is kept safe, just in case.

    It’s a simple story; it may or may not be convincing (I can’t see any logical reason why it should not, but that could be just me), but you can see the role coercion plays.

    (It also shows that the material the mean of exchange is made of has no relevance. And, finally, it shows why effective demand is an issue).

  16. 1. The fact that a government demands that taxes be paid in its currency does not make that currency the most widely used form of money in the country concerned if that government administers the currency incompetently. E.g. In Zimbabwe, the official currency was despised a few years ago (even though I assume taxes had to be paid in that currency). People tended to trade in U.S. dollars, etc.

    2. There is no sharp distinction between the money we all have to pay for food (which is coercive, in that if we don’t eat we starve) and the money we pay for what government does (provide education, health services, etc). Government education and medical services are effectively in competition with private providers of those services. If governments don’t provide value for money in these areas, they get the boot, and customers/voters opt for the private equivalents. The fact that money paid to government for those services is called “tax”, and payment for your groceries is not called “tax” is irrelevant. So governments are much like supermarket chains: large conglomerates.

    Put another way, if we had no money, and a supermarket chain started issuing tokens with which to buy their stuff, those tokens could easily become the basic form of money.

  17. Ralph,

    “and the money we pay for what government does (provide education, health services, etc). ”

    Isn’t this “taxpayer on the hook” though? ie the way this is phrased, it may lead one to believe that the govt needs our “money” to be able to provide services… like the govt “needs the money”.

    Would not the Chartalist view be such that the govt sector wishes to procure health services from the non-govt for a certain portion of the population so it provides balances to the non-govt health providers then collects some taxes…

    Resp,

  18. Ralph,

    I completely agree, as the quote I posted above from Randy suggests. Further, back in 2004, I wrote the following:

    “What matters is not whether there are other, private methods of settling payments, or whether private payments are settled at all on the Fed’s books, but whether there is a non-trivial demand for reserve balances; that tax liabilities are settled with the Treasury via debits to reserve accounts is sufficient for such a non-trivial demand to exist.”

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1723591

    There are always been and always will be methods of payment in circulation besides the “state’s” money. In the US, there is a deliberate legal requirement that the Fed promote competition among private sector institutions with its own liabilities in retail and wholesale payment settlement.

    Many are currently misinterpreting our words to suggest we would disagree with the two points you make. That is not true whatsoever, and never has been.

    Best,
    Scott

  19. The notion of government as supermarket of services, driving acceptance of currency by producing and selling things to the private sector is one addressed in the paper linked to by Scott in an earlier comment:

    “…one accepts government fiat money because one knows one can buy goods and services from government by delivering the same government fiat money in payment. While this is not theoretically implausible, it does require that government, like Microsoft, is a producer and not a consumer of the nongovernment-sector’s output. There may well be governments like that in the real world, but Merhling’s theory is not obviously applicable to the case of most governments around the world… which do provide some goods and services, but which are consistently very large net consumers of private sector output.”

  20. Agree, geerussell,

    I didn’t look carefully enough. I was agreeing with Ralph’s point here:

    “Put another way, if we had no money, and a supermarket chain started issuing tokens with which to buy their stuff, those tokens could easily become the basic form of money.”

  21. Addendum to previous comment: The reason I ask is that initially it when you hear people discuss the “taxes drive money” view (or whatever you want to call it), it seems like a theory that should relate changes in the price level to changes in some given tax rate. In addition, many people (perhaps not academic MMTers, though) do talk about raising taxes to control inflation, which also suggests that the demand to hold a certain stock of liquid wealth is related to the tax rate in some stable manner.

  22. vimothy, I’m not sure I’m interpreting your question correctly and have been hoping somebody else would jump in. 🙂

    My understanding is that what matters for inflation is the size of the budget deficit relative to the non-government net saving desire. Since the latter can be unstable and unpredictable, there will not be a mechanical relationship between the deficit and prices. Also, since tax revenues are endogenous, the deficit will vary for given fiscal settings. For these reasons, I don’t think there can be a simple relationship between fiscal settings and the price level.

    The benefit of automatic stabilizers, including perhaps a JG in the future, is that they counter unpredictable changes in non-government net saving behavior in a timely manner. The academic MMTers argue that a JG would anchor the price level, but prices would still be susceptible to alterations in non-government net saving behavior and, at times, call for tighter or looser generalized fiscal or monetary measures.

  23. Peter,

    Came across these excerpts from a book by JK Galbraith in 1975 “Money: Whence it came, where it went”.

    http://lachlan.bluehaze.com.au/books/galbraith_money.html

    Don’t see the Chartalist view represented in name anyway. But there are some interesting historic observations by JKG in any case.

    I never heard this book mentioned before so some may find it interesting if they also did not know about it….

    Resp,

  24. Scott, Ralph said

    “Put another way, if we had no money, and a supermarket chain started issuing tokens with which to buy their stuff, those tokens could easily become the basic form of money.”

    See Canadian Tire Money

    Some privately owned businesses (in Canada) accept CTM as payment

    Also from Canada’s Favourite Currency: Canadian Tire Money

    In Canada, various pubs, drycleaners and other businesses have accepted the currency. A bakery in Toronto’s Kensington Market used to trade Canadian Tire money for bread. A restaurant in Guelph even advertised ‘Canadian Tire Tuesdays’, where you could trade Canadian Tire Money at par.

  25. Peter,

    Thanks.

    So it seems like from a practical point of view, taxes are not expected to be a very effective tool of demand management. Presumably, the same can be said for govt expenditure, for the same reasons (i.e. what’s important is the level of net expenditure but its effects are unpredictable so not exploitable). Is that fair?

    If so, why would you expect the automatic stabilisers to be more effective? Don’t they work through the same channel (NFA)?

    I’m still interested in finding out more about why in the Chartalist view people want to hold money though, as opposed to other assets. I did read some of Goodhart’s Money Information and Uncertainty last year, and from what I remember he used fairly standard demand functions (a la Tobin), but perhaps Goodhart is not a Chartalist or at least non-typical.

  26. vimothy: The significance of automatic stabilizers is that they are endogenous and respond passively and countercyclically to non-government spending decisions. In contrast, other government expenditures and also tax rates are exogenous. Once they are set, changes in non-government behavior that are not anticipated by policymakers can render the exogenous decisions inappropriate.

    To take a JG as an example, when non-government spending increases and employment picks up in the regular economy, government spending associated with the JG automatically decreases and tax revenues (due to higher incomes) increase. And vice versa in a downturn. The response is passive – decided, really, by the non-government’s behavior – and does not require perfect anticipation of non-government behavior. There would still be an attempt to have exogenous fiscal settings at a level conducive to strong but not inflationary demand in the broader economy, but the automatic stabilizers provide a larger margin for error.

    Regarding demand for holding money (i.e. what proportion of NFA to hold in liquid form), I am not certain whether MMTers are all in agreement on that question, but I imagine they think some form of Keynes’ liquidity preference theory is relevant.

    Having said that, it seems to me that the approach would be open to other explanations of money demand.

  27. Peter,

    Why should the automatic stabilisers be more effective, simply because they’re automatic? If the relationship between NFA and prices is unstable and unpredictable, then the effect of the automatic stabilisers should be unpredictable and unstable too, no?

    Re the liquidity preference theory, I find that hard to reconcile with the idea that bonds and cash are equivalent, which I’ve heard many MMTers claim. Am I mistaken in this? If I’m not, how can liquidity preference explain the demand for money?

  28. Vimothy,

    Automatic stabilizers are more effective, because politically, they require a one time approval by the legislature. After that the parameters of the stabilizer can be tweaked administratively, within the limits set by the legislature.

  29. vimothy: In MMT, inflation will occur if NFA exceeds the non-government net saving desire. What matters for inflation is that the budget deficit does not exceed this net saving desire. For example, NFA might be less than the non-government’s net saving desire, which would be deflationary. The non-government attempt to increase net saving would be countered by the automatic government spending and taxing measures. For instance, the JG spending would increase automatically while taxes fell, enabling an increase in NFA that was consistent with the non-government attempt to net save, and alleviating deflationary pressure.

    Regarding liquidity preference, people can move between assets with different liquidity reflecting changes in their liquidity preference. But this is not a decision to spend or not spend. It is a decision to be more or less liquid. In the theory, greater liquidity will be desired if prices on bonds are expected to fall. The decision to go liquid is not necessarily in order to spend in the real economy but to capitalize on asset price movements, and so does not necessarily have inflationary implications. Relating back to MMT, what matters in that approach for inflation is the net saving desire relative to NFA, irrespective of the composition of saving.

  30. FYI, we do not say bonds and “money” are equivalent. We say that holding Treasuries does not constrain spending. Those are entirely different things.

  31. Scott,

    Can you expand a bit on why/how treasuries don’t constrain spending (or maybe a pointer to further reading)?

  32. geerussell,

    treasury security is one of the most liquid asset, you can sell that easily. And if you buy treasuries, probably you haven’t another way to invest that money, no?

  33. Sort of, and forgive me if I’m being dense here. My takeaway had been similar to vimothy’s above. That one could loosely say cash and treasuries were equivalent, since treasuries are also gov’t IOUs and so liquid.

    What I’m trying to understand is where that thinking goes wrong.

  34. Scott,

    Thanks for clarifying. It seems to me that it might still make sense to talk about equivalence there–an equivalence between bonds and cash in terms of their effects on nominal aggregate expenditure, which implies some kind of equivalence to the holders of those assets. So I’m interested in understanding the nature of (what I’m interpreting/characterising as) this equivalence.

    Where I’m coming from can perhaps be related to your statement that bonds do not constrain spending. Of course I agree that govt bonds are highly liquid. But my question is why an individual agent should choose to hold cash over bonds. Assuming the yield on bonds exceeds that on cash, any investor ought to choose to hold bonds–unless there is some other compensatory benefit accruing to cash. Given that, what compensatory benefit could make the investor indifferent between holding bonds and holding cash?

  35. Peter,

    Sorry it’s taken me a while to respond. Damned exams, interfering with the really important stuff 😉

    Couldn’t the effect of the automatic stabilizers be characterised as a fiscal policy feedback rule–one with (effectively) no discretion and absolute time consistency?

    And if the effect of the policy rule is not predictable, why should the effect of the automatic stabilizers be predictable? I mean, it seems like the same thing in principle. Or perhaps there’s no practical way for the govt to implement such a feedback rule effectively given the political constraints on fiscal policy (e.g., the time it takes to get spending programmes through the legislature, etc).

    It does seem like the obvious conclusion of an MMT-type analysis that everyone should be guaranteed an income by the government in a direct transfer. But I’m interested in how and why all the parts fit together. Another thing related thing that I’ve been wondering about, and perhaps Scott could shed some light on, is how MMT sees the dynamics of NFA playing out in the event of the institutionalisation of its views. E.g., at the point of full employment, how does NFA behave? dNFA = 0, dNFA = dY, etc?

    Incidentally, from what I remember of Godley & Lavoie’s “Monetary Economics”, it mostly focuses on analysing the steady state solutions of the dynamic models, but I don’t remember reading any applications of the model to business cycles–in particular, it would be very interesting to see the model subjected to stochastic shocks to see what sort of business cycle dynamics it could generate. Do you know of any papers in this vein?

    Cheers

  36. “E.g., at the point of full employment, how does NFA behave? ”

    That’s less of a point and more of a line. Full employment is like light speed – it’s impossible to get to the optimal point (everybody engaged at the maximum output they could produce). So the best you can do is try to get close to it. Friction stops anything more, and the friction varies throughout the economy and is different in each economy.

    All hiring systems suffer from the same problem. Once you get to the point where there is insufficient choice you start getting perverse outcomes. The labour hiring market is even more exciting because you start getting perverse outcomes if the hiree doesn’t have a choice too. That generally doesn’t happen with cars or hotel rooms 🙂

    Incidentally the general rule of thumb is to avoid running hiring systems greater than about 80% utilisation. That’s considered ‘full’. Push beyond that and weird things start to happen that make your system unstable.

    And it depends what you mean by full employment – which is another of those Humpty Dumpty terms like inflation that makes analysis so damn difficult.

    The best that any of these macro economic system designs expect is that everybody has a minimum income, something to do and that AD is prevented, systemically, from dropping below some minimum level.

    That leaves a lot of capacity spare in terms of potential output that entrepreneurs can tap. If they can persuade people that they can enjoy themselves just as much doing something else and tap the surplus generated then you get a ‘fuller’ employment.

    “it would be very interesting to see the model subjected to stochastic shocks to see what sort of business cycle dynamics it could generate.”

    Yep. That’s what we need – a weather forecast model that we can perturb dynamically. Inevitably there will be non-linear non-deterministic feedbacks in these systems and we need to understand what they are and what they do.

    Lot’s of work to do in that area.

  37. Regarding the moneyness of the Buckaroo I subscribe to Ingham’s test:

    Money is uniquely specified as a measure of abstract value (money of account) (Keynes 1930;270 Economy and Society Grierson 1977; Hicks 1989; Hoover 1996); and as a means of storing and transporting this abstract value (for means of final payment or settlement of debt (Ingham 2004: 70).
    source: http://cas.umkc.edu/econ/economics/faculty/wray/601wray/Ingham_ontology%20of%20Money.pdf

    The buckaroo passes those conditions. I am uncertain why it is important to have citi quote the exchange rate or the ability to buy an iPod are critical features.

  38. It’s awesome to see some of these guys bashing Chartalism based on nothing outside ideology and a total lack of understanding of history. They like to believe in the fairy-tale of the “good old times” – when a bunch of white, smart, slave owners decided they wanted to be free. When they stated that all men are created equal, except for women, neggars, and indians. The same “small” governments which advocated the slave-plantation, the stealing of indian lands, the robbing of land from the mexicans. The imperialist policies in central and south America, then later on those imperialist policies abroad.
    Oh, yeah, great pseudoarguments against the idea of tax-driven money. People should dump all the useless dogmas they’ve been force-fed all their lives, and start studying actual human history and take a simple course in double-entry bookkeeping. For the latter, I recommend Debt, The first 5000 years, by David Graeber.

Leave a Reply

Your email address will not be published. Required fields are marked *