Home > Uncategorized > Is bitcoin ´money´? The Post Keynesian view.

Is bitcoin ´money´? The Post Keynesian view.

from Paul Davidson

What is Bitcoin?  According to Modern Money Theory, bitcoin can not be money since it is not accepted in payment of taxes by any government — nor is it issued by any government via the governed purchase of goods and/or services from the private sector.  So what is bitcoin in terms of MMT?  I do not know what MMT  proponents would respond to this query?

For Post Keynesian liquidity theory of money, the answer is clear.

In Post  Keynesian monetary  theory money is anything that will settle a legal contractual obligation.

And by the civil law of contracts, the government determines what settles a legal monetary contractual obligation.

Thus not only legal tender but also checks drawn on a bank account  (but not financial securities such as stocks) can legally settle any legal contractual obligation (since the government regulates banks to assure that bank deposit liabilities are a “tap” issue that is immediately transferable into legal tender).  And the government is the enforcer of legal contractual obligations.

Individuals can make all sorts of production and exchange (purchase) agreements among themselves — but only it calls for a money transfer to discharge the obligation, these contracts are not legal contracts.  Thus I can agree to cut my neighbors lawn and he can agree to wash my car in exchange — but this agreement is not legally enforceable.

Bitcoin will not remain a liquid asset unless there is an institution  [ a market maker] who will maintain orderliness.

Bitcom is merely another tech fad similar to sub prime mortgage backed derivatives that was sold to the public as being as good as cash and therefore easily convertible into money!

And we all know what happened to this derivative market.

Bitcoin is not money but it is a liquid asset.  A liquid asset is any durable  that is traded on a well organized  market for resale.  But to be truly liquid that market must not only be well organized but it must be ORDERLY.  By orderly we mean that although the transaction price in terms of some denominated money may (or may not) vary from transaction to transaction,  the movement will be small and orderly – so that anyone holding the liquid asset believes he/she can make a fast exit at any moment of time without a significant change in the market price vis-a-vis the last market price transaction.

  1. F. Beard
    November 27, 2013 at 9:05 pm

    Common stock is obviously a private form of money just as bank credit is since both are backed by the assets of the issuer. But the latter requires usury and all sorts of government privileges while the former doesn’t it.

    So MMT’s definition of money ONLY applies to money for government debts.

    • November 28, 2013 at 5:23 pm

      have you every walked into a department store and tried to buy a pair of pants and paid for it with one share of AT&T common stock? I think you would not be able to get out the door with the pair of pants.

  2. November 27, 2013 at 10:04 pm

    I’m very surprised you haven’t read any of the many papers Randy Wray has written on the subject. MMT says nothing of the sort.

    When you transact you exchange your real good/service for a debt with the purchaser. That debt is settled simply by swapping the debt you have with the purchaser for something else the purchaser has that you consider to be of value. That gives the original debt back to the issuer, and extinguishes it.

    It’s the ability to exchange bit coins to other currencies that has given bit coin its value. Just the same as bottles of fine wine – or art works.

    Bitcoin is a real asset. Somebody expended computer power creating the relevant hash that represents the value in the bit coin system. That real asset is then passed around – just like a bottle of fine wine or an art work.

    “Thus I can agree to cut my neighbors lawn and he can agree to wash my car in exchange — but this agreement is not legally enforceable.”

    The contract is indeed enforceable. Washing the car is consideration. However the court will likely award equivalent monetary damages for non-performance. However as an alternative the court can order ‘specific performance’ and require the defaulter to fulfil the actions specified in the contract.

    • merijnknibbe
      November 28, 2013 at 11:29 am

      With wine and, especially, works of art you run into ‘unit of account’ problems as well as problems wiht transferability. Also, the government does promise to exchange government money proper (cash and paper money) at a guaranteed 1:1 exchange rate for anonimous bank credits. You can imagine a world where bank credits are not just denominated as having a value of one ‘Euro’ but as a ‘Deutsche Bank’ credit with a value of 1 Euro or a ‘Credit Agricole’ credit with a value of 1 euro. Remarkably, we live in a world where banks do not have to do this and issue anonimous credits, which, partly because of their guaranteed exchange rate with government money, are considered to be legal tender *by the government*. the unit of account is not as neutral as you assume!

      • merijnknibbe
        November 28, 2013 at 11:32 am

        I.e. -when a bank goes bust the credits issued by this bank are still considered to be money!

    • November 28, 2013 at 5:32 pm

      art works is only semi liquid — in that the resale market is not that well organized and there is no single market maker to insure fast exit liquidity. The costs of such transactions are also very high!

    • December 1, 2013 at 1:21 pm

      I can’t agree that a Bitcoin is a real asset any more than an Emissions Credit: the two both relate to PAST energy use.

      If on the other hand, a Bitcoin were a promise of FUTURE computer processing power then it would indeed have real (but subject to Moore’s Law entropy) value in exchange, because the holder could return it against something useful whether or not anyone accepted in exchange.

      There’s nothing useful about either a hash or an emissions credit. Their value is whatever people believe them to be and/or arbitrarily impose, respectively.

  3. William Turnier
    November 27, 2013 at 10:27 pm

    And what about soy bean meal, winter wheat and lean hogs? All trade on organized markets.

    • November 28, 2013 at 5:29 pm

      soy beans, etc traded on organized exchanges—what is traded is titles to a quantity of the commodity such as soy beans, or wheat. These titles are liquid assets as long as the market is well organized (so buyers and sellers of these titles can easily get together for a transaction) and the market s orderly — so there is someone willing to make them market! these titles are not money!

  4. November 27, 2013 at 10:55 pm

    You can have legally enforceable barter agreements; corporations can structure non-cash deals. However, from a tax standpoint, a barter transaction has to be treated as two transactions in which the transfers of money (denominated in the state-defined unit of account) cancel out. This is because the deal has to be assigned a monetary value for income tax (or sales tax) purposes.

    Bitcoin users who actually want to obey the law will have to translate all their transactions into the local legal currency to determine their income tax bills. This fact is not emphasized as I do not think income tax liabilities are deeply considered by the existing bitcoin user base.

    The state defines the unit of account, and everyone subject to its tax laws has to denominate transactions in that unit of account (or disobey the law).

    • November 28, 2013 at 5:35 pm

      you can not have legally enforceable barter agreements — as my example of my agreeing to wash my neighbors car if he cut my lawn. If after he cuts my lawn I refuse to wash his car, the government can not force me to wash his car! After all the civil war in the US determined that slave contracts are not enforceable — and therefore I can not be legally forced by the government to work to wash my neighbors car!

  5. November 28, 2013 at 11:14 am

    An article
    http://www.theguardian.com/technology/2013/nov/27/hard-drive-bitcoin-landfill-site?CMP=EMCNEWEML6619I2
    in this morning’s Guardian illustrates another dimension to Bitcoins

    “Missing: hard drive containing Bitcoins worth £4m in Newport landfill site”

    “Although Bitcoins have recently become part of the zeitgeist – with Virgin saying it will accept the currency for its Virgin Galactic flights, and central bankers considering its position in finance seriously – Howells generated his in early 2009, when the currency was only known in tech circles. At that time, a few months after its launch, it was comparatively easy to “mine” the digital currency, effectively creating money by computing: Howells ran a program on his laptop for a week to generate his stash. Nowadays, doing the same would require enormously expensive computing power.

    That lost hard drive, though, contains the cryptographic “private key” that is needed to be able to access and spend the Bitcoins; without it, the “money” is lost forever.

    And Howells didn’t have a backup.
    Howells stopped mining after a week because his girlfriend complained that the laptop was getting too noisy and hot while it ran the programs to solve the complex mathematical problems needed to create new Bitcoins.

    In 2010, the Dell XPS N1710 broke after he accidentally tipped lemonade on it, so he dismantled it for parts. Most were thrown away or sold, but he kept the hard drive in a desk drawer for the next three years – until that fateful summer day when he had the clearout.

    Howells didn’t realise his mistake until Friday. Since then, he said, “I’ve searched high and low. I’ve tried to retrieve files from all of my USB sticks, from all of my hard drives. I’ve tried everything just in case I had a backup file, or had copied it by accident. And … nothing.”

    He even went down to the landfill site itself.” Read more here: http://www.theguardian.com/technology/2013/nov/27/hard-drive-bitcoin-landfill-site?CMP=EMCNEWEML6619I2

  6. November 28, 2013 at 12:19 pm

    Hi,

    I’m a MMTer, and have written the first MMT book in French http://www.amazon.fr/Devises-lIrresistible-Emergence-Monnaie-Jean-Baptiste/dp/235209707X/ref=sr_1_1?ie=UTF8

    MMT says about alternate monies that, albeit they may perfectly exist from a strictly logical point of view, they suffer many shortcomings preventing them from really threatening currencies’ hegemony.

    1. Yes : if the State has not chosen bitcoin or an alternate money as his currency of choice, you’re left managing at least two currencies, with their exchange risks and fees…

    2. Almost no people willingly choose to manage several monies. On the contrary, unlike other goods, by design, money is an *universal* measure and store of value. Exceptions are speculation, numismatists, and cross-border traders. None of them is able to really challenge the inherently monopolistic nature of money : International traders are not relieved from State’s power to choose and empower one currency over competitors : they are simply under multiple contradictory pressures, one for each State and his currency of choice. Most people not concerned with international trade simply avoid the extra-pressure. Just like any other investor, speculator don’t always invest all their money in markets : they also want a cash account to simply trade with their immediate neighboorhood whenever they want (like eating, clohting, etc.) and hence slant towards one particular currency over other, like anyone. Numismatists do handle many, many currencies, but they do so withdrawing those monies from the economy and exchanging it for the sole purpose of art/history ; hence, economies are never enticed enough to choose those currencies instead of their State’s ; besides, it’s hard to see any numismatic value in bitcoins : what is particular in bitcoins’ binary code, or hahcode, etc. and rare (more than just replicable data) ?

    3. With a proper community backing a currency, that currency is much more flexible, and you get leeway to deficit-spend into its economy a way out of recession, for instance. Hence, if all kind of monies are run optimally (many factors can hinder the potential of each, like absurd psychological fears, wars, etc.), modern states’ currences are bound to outdo alternate weak-community monies by a landslide…

    Hope it helped,

    Regards,

    Jean-Baptiste Bersac

    • November 30, 2013 at 2:08 am

      Then according to you, among the alternative monies are postage stamps collected by stamp collectors who then have to decide on the exchange rate of a piece of paper with Washington’s picture used to move a letter in the 1930s and the picture of Washington on a newly issued Federal Reserve note,

      What make government money the “universal” measure of value and store of value. Why did the Korean civilians use military script as the measure of value and store of value even thog they quickly learned that every once in awhile, the US military, without ptrewarning, would call in old script for ne script — and therefore make old script a zero store of value??

      Did the Korean government have monopoly control in the example of Korea that I gave? Or was it the US military have monopoly?

      • Pual S
        April 22, 2014 at 11:17 am

        Your Korean example reconfirms the notion that violence is the anchor of money. It is the government’s sovereign right to punish that gives its tokens value – it is a perpetual primitive accumulation machine.

  7. November 28, 2013 at 4:04 pm

    here is a question for you MMTers — I was in the US Army during the Korean war and so I know this happened.

    In Korea during the war, soldiers were paid with military script. This script looked like Federal Reserve notes but were not printed or issued by any Federal Reserve Bank. Instead they were printed by the US military and had big black letters printed across the back KOREA.

    The script was only good for things one could buy at the US military Post Exchange on a military camp in Korea. Only US military personnel could purchase things at the Post Exchange.

    They were issued partially to prevent soldiers from engaging in commerce with the civilian population in Korea.

    The Korean government currency was the yuan –and taxes were required to be paid in Yuans.

    Soldiers when they had a pass or a few days leave would want to buy “wine, women and song” from the civilian population.. so they would make their purchases in military script and consequently military script leaked out to the Korean civilian population.

    Now the Korean government still required payment in yuan for taxes — so civilians held some yuan to pay taxes but they had little faith in their own government and much more faith in the US military.

    Accordingly, the civilian population started using US military script for transactions between members of the civilian population. Military script– and not Yuan — became the “money” of the private sector –even though it was an IOU from the US military that Korean civilians could not collect on!

    The Army expected each month that the US military script earned by sales at the Post Exchange would equal approximately the sum paid out to soldiers each month. BUT they found out much less was coming in to the Post Exchange each month then was being paid out. And they realized the script was being used by the civilian population.

    So every once and awhile, all military personnel would be restricted to their base and a Script change was order where all old script was no ;longer accepted at the Post Exchange and any old script soldiers had had to be turned in to be exchanged for new script (that had a somewhat different design so it could be easily recognized as different from new script).

    As soon as the Korean population heard about this — they would no longer accept old military script for transaction among the civilian population. Those civilians holding old script would rush to the barbed wire fences surrounding the US camps and haggle with soldiers inside the fence — for the soldiers to throw over things bought from the Post Exchange (such as cigarettes) in turn for old script thrown over to soldiers (who made a profit on the exchange).

    Then later on to civilian population could sell the commodities such as cigarettes to soldiers and obtain new script. The NEW script then became the “money” of use by the Korean civilian population — at least until the next time the military called for a script change.

    for soldiers who got od script at the fence, it meant turning in many more dollars in script then they had received in pay. when asked by an officer where they got so much old script — the answer was almost universal –they won it in a dice game!

    • November 28, 2013 at 7:49 pm

      Hi Paul,

      Well you’re testimony is a great story in favor of MMT :
      Here, the trick is there’s not one State power, but two. As you remarked, both anchors vied for supremacy : Korean won never disappeared despite Korean State weakness (to my recollection, it was crushed by the North until the US army stepped in), because of its taxes ; US scripts were tied to the acceptance at US Post Exchange, albeit indirectly via GI’s, as Korean people rushed to redeem the scripts before expiration. Notice that today, with US away and only the South Korean government, South Korea private sector uses massively the won instead of any other currencies, even US dollars.

      Where is private monies popping out and taking the economy by storm ? Not marginally but hegemonicly ? Contrary to all the free-markets fads, states rule…

      I think your question is answered (you did not really formulate any).

      best regards,

      Jean-Baptiste

      • November 28, 2013 at 8:11 pm

        If I understand you, you are indicating that whatever the public accepts in private transactions between themselves is the money of the private sector –even f that money can not be used to pay taxes to the existing government.

        If that is correct then the tax ability of the government is neither a necessary or sufficient condition to make something money. In my Korean case, as long as the US military was willing to take this script in payment for things that they would sell ONLY to US military, then the Korean public had more confidence in the US military accepting “voluntary” payment at the Post Exchange –even if the Koreans could not directly make this exchange payment but the Koreans believed they would always get a middleman (a soldier) to make this exchange! So this script had liquidity, guaranteed by the military, in the sense it could purchase goods/and services –even indirectly at the Post Exchange. And this liquidity property was sufficient to make it the money of the private sector — whilr the Yuan , though needed to pay taxes, was not used for private sector transactions- where both parties to the transaction were in the private sector

        . As soon as the military refused to accept OLD script anymore, this old script lost its liquidity property not only at the Post Exchange but also for settling private sector contractual obligations.

        If this correct, then it is the question of what are the essential properties and characteristics of liquidity that makes something money and other things liquid assets ; — and may make the thing that the government takes in the form of payment of taxes –having no liquidity value except to pay taxes!

      • November 30, 2013 at 2:19 am

        what makes the government money predominate in a peace time economy is the civil law of contracts which says that the State is the sole enforcer of contractual obligations if either side of the legal money contract defaults or reneges n its contractual obligation.

        In a market economy, most people make contractual agreements with other parties that they do not personally know and therefore do not know how trustworthy the other party is! But they can trust in the government to force the reneging party to meet it contractual obligation or else pay a penalty in terms of money.

        Its the institution of the civil law of contracts that permits the government to say what it s that discharges all contractual obligations — that is money. As Keynes said in his TREATISE ON MONEY this permits the government to write the dictionary as to what is the means of contractual settlement that we call money.

        If people do not have fait in their government and itd ability to enforce contracts, people may not use the thing the government requires for paying taxes in order to pay contractual obligations.

  8. November 28, 2013 at 5:26 pm

    sorry but history does not support your claim when a bank goes belly up its credit is still money> Why was there bank runs before we had government insured bank deposits? Before deposit insurance, deposits at a failed bank (i.e. bank credit) was valueless –it is only government insured deposits that permits these deposits to live on after the bank fails.

  9. November 28, 2013 at 9:04 pm

    paul davidson :
    If I understand you, you are indicating that whatever the public accepts in private transactions between themselves is the money of the private sector –even f that money can not be used to pay taxes to the existing government.
    If that is correct then the tax ability of the government is neither a necessary or sufficient condition to make something money. In my Korean case, as long as the US military was willing to take this script in payment for things that they would sell ONLY to US military, then the Korean public had more confidence in the US military accepting “voluntary” payment at the Post Exchange

    No, you misunderstood me (and/or I misexpressed myself). There’s two times in the sequence, each needing explanation.

    1. Acceptance. When private people are looking for a money to exchange conveniently, they seek the money with the biggest community backing it and of direct interest to them. In that case, despite the US Post Exchange being only the most desirable store (I bet it was very hard to get highly desired home products in the Korean markets) for GIs, it was a good enough liability imposed on the GIs (no taxes were levied on them in another money, by the way, at that moment in Korea). It’s not as strong as a real tax, but in that particular case, it’s good enough. Please notice that the script money was, once again, chosen by a state power, ans institutionalised community. If all GI had to create a money by their own means, it would have been a messy myriad of rival monies with little community backing each, and even the army Post Exchange cashier would have found the exchange rates management pretty nightmarish. My bet is the Korean won (the only other emerged currency in your story) would have be the incumbent currency.
    However, I’m not sure that approximation of a tax could be always sufficient. Actually, I highly doubt it. Let’s suppose the US federal government discards its ability to choose its money. All administrations get to finance themselves as they can, including valuable services like justice courts, etc. My bet is : whatever currency chosen by the local State would quickly become the standard (in its territory, meaning something like 50+ official US monies all over the US)…

    2. Hegemony. Actually, not all people in a State’s territory has taxes levied upon themselves, personally. Yet, here’s come the famous snowball effect. Before a core of a taxed community of people existed, nothing emerge, because nothing had a competitive advantage (Shall I remind you private dollars, before the Fed, when you exchanged bank A’s dollars against bank B’s dollars with a haircut varying over time ? With never ever a true convenient hegemony because the bank is private, hence stood ready to redeem its dollars against gold or silver, and could not monetize all the economy, only the stock of metal it could get, and the risks it dares to take ?). Once that core exists, though, it’s like the beginning of a snowball or an avalanche : you cannot stop it getting bigger and bigger (that is, unless another state on its territory opposes its own “avalanche currency” to yours) : people trading with taxed people have now an incentive to chose that same currency over competitors, because they know those people will accept it easily. Hence the community of people choosing your currency gets bigger, making your currency more desirable to even more people. etc. If your State is perfectly sovereign over its own territory, nothing prevent him from currency hegemony on its own people and territory. (of course, nothing is absolute, and the borders can be fuzzier, with international traders managing multiple currencies, state currencies by all likelihood, like said in previous comment). Your State almost always “accelerates” the avalanche by taxing a proportion of income : if there’s a $1000 on house property and a 50 % income tax, house owners are actually compelled to get $2000 to keep their houses, and people desiring to trade with them for $150 of something the taxed are too eager to miss an opportunity for dollars, those “avalanche people” actually need $300 to trade with them, etc.

    The essential quality of a currency to rule is to be backed by your community. It’s tremendously easier to be backed by your community when your community chooses it than when you’ve have to make your community choose it out of your own personal isolated merits. Why the community would choose yourself as its standard when it has itself ? Have a look at the real world : state currencies are literally hegemonic. How weird : communities’ people choose the currency they’ve each institutionally, not spontaneously out of an aleatory market, chosen. The truth behind market’s alleged ability to build up a community as strongly as as state ? A plain and simple state. Surprise !

    If you don’t believe me, try by yourself : create your own currency, then try to pay your taxes with it or to convince people it’s

    Best regards,

    • November 30, 2013 at 2:26 am

      The history of US money before the Federal Reserve required all monetary contracts to have an implicit if not explicit “gold clause” Therefore bank money was inherently written in gold – and the civil law of contacts indicated that the government would enforce all contractual obligations in terms of gold (or at least easy access to gold). and in the period of bimetallism — both gold and silver in terms of a specified weight of the metal as equal to $1..

  10. November 28, 2013 at 9:07 pm

    OOPS. here’s the rest :

    If you don’t believe me, try by yourself : create your own currency, then try to pay your taxes with it or to convince people it’s all fine to offer you seigniorage (inherent to money, opposed to barter) for your currency that has no acceptance but yours. You’ll find people to trust you, especially if you’re most serious about it. But look honestly at how far you really go… Short, isn’t it.

    Best regards,

    Jean-Baptiste

    • November 30, 2013 at 2:27 am

      the problem of creating my own currency is that the government will not enforce a contract where payment is specified in terms of Davidson’s IOU currency!

  11. November 28, 2013 at 9:08 pm

    Error : remainder, not rest.

    And I need to rest. I reply later if needed…

  12. Lyonwiss
    November 29, 2013 at 3:04 am

    Most economic theories are poorly formulated, including MMT, because they never fully articulate all important assumptions they are making and often they do not even properly defined terms. All discussions about, or based on, those theories are muddles.

    Money is an ABSTRACT concept defined by the three well-known properties. There are many INSTANCES of money, when those properties are satisfied, including sea shells, cigarettes, gold coins, fiat currencies etc. for particular circumstances depending on geography and time period. There is no point arguing whether gold is money or whether debt is money or whether something else is money, as though a particular instance of money is universal. The concept of money is perennial, whereas instances of money are ephemeral.

    By tying the definition of money to taxes, MMT effectively limits its concept of money to countries and times, when governments both issue currencies and collect taxes. MMT emphasizes the ability of governments to create fiat currencies to solve economic problems, in an over-simplified view of economics. The ability to create fiat currency “out of thin air” is already well-known by governments and been widely used and abused, particularly recently.

    In a free society and democracy, a government’s power is not limitless. Abuse of the government’s privilege to create fiat currency, as a form of indirect taxation, leads eventually to a loss of trust, revoltion of the currency and popular revolts. People are seeking alternatives from old faithfuls such as gold and silver, or invent new systems such as Bitcoins, in order to by-pass a fiat currency system, which is fraudulent because currency creation is excessive relative to economic production.

    Governments are not anxious to teach people about money even in economics education, because they need to tax and appropriate wealth from its citizens with minimum resistance. There is a long history of many extinct fiat currency systems. The global fiat currency system may well be on its death bed, judging by the enormous interest in alternatives.

  13. November 29, 2013 at 12:48 pm

    I think you’re mistaken about what a MMTer would say. MMT is focused on state moneys, but they don’t say that only the state (or some debt imposing authority) can create money. Wray has a blog post about BitCoin that says taxation (by the authority) is a sufficient but not necessary requirement for creating a currency. Geoffrey Ingham (who’s work MMTers are fond of) explains that money is defined by those three familiar properties (unit of account, store of value, medium of exchange). If I’m right, BitCoin has some properties of moneyness.

    Further reading on the ontology of money: http://cas.umkc.edu/econ/economics/faculty/wray/601wray/Ingham_ontology%20of%20Money.pdf

    • Lyonwiss
      November 29, 2013 at 3:36 pm

      If you read my first paragraph again, you see that I imply MMT (like other economic theories) would not have a single consistent view. Who is the final arbiter of what’s MMT? Wray? In any case, the state is central to, or at the core of MMT, whether Bitcoin is considered by MMT to be some form of money or not. My point is that there were times in the past and there will be times in the future when the state is not central to money.

      • November 29, 2013 at 9:02 pm

        MMTers have always considered several forms of monies. For instance, from Knapp to Wray, there’s always been at least state currency and private credit. The key, in (ne)chartalism, is the hierarchy of monies : they’re are not all created equals. It’s much easier to default on a check or a credit account than on a dollar bill or a coin. If you can get that, you can start your journey in the land of MMT…

        Regards,

        JB

      • Lyonwiss
        November 29, 2013 at 11:29 pm

        MMT is either trivial or contradictory. It is trivial if money is accepted as a concept and therefore there are many instances of money. It is contradictory if MMT asserts that there is more to it than that. If you understand what I’m saying you can start your journey in the land of clear thinking.

      • November 30, 2013 at 1:56 am

        what is your concept of money? why do all market transactions have to be denominated in terms of money? Enlighten us! Even bitcoins are ultimately denominated in terms of dollars

      • November 30, 2013 at 3:50 am

        “If you read my first paragraph again, you see that I imply MMT (like other economic theories) would not have a single consistent view.”

        There is descriptive MMT, and prescriptive MMT. Descriptive is single and consistent. Prescriptive differs between people who agree on the descriptive, based on the MMTer’s politics but the vast majority would like to organize society so at a minimum there is relative price stability and true (as in everyone who is able and wishes to work is able to) full employment.

        Alas, there is no MMT authority that defines what is MMT and what isn’t. It’s just a useful label the community uses to identify work that uses and builds on the work of certain giants. What authority defines what is Post-Keynesian or not? Same thing I imagine. The MMT academics made a conscious decision not to have any decision making apparatus and make the knowledge open and easily accessible for anyone to use.

        “By tying the definition of money to taxes, MMT effectively limits its concept of money to countries and times,”

        They don’t.. They go out of their way, often, to remind everyone that Minsky said anyone can create money, the trick is to get it accepted. Plus, what Jean-Baptiste Bersac said about hierarchies.

        “My point is that there were times in the past and there will be times in the future when the state is not central to money.”

        Good, there is no argument.

      • November 30, 2013 at 4:48 pm

        When the state is not central to money – there will be no civil law of cntracts– or if there is such a statute on the books , no one expects the State to enforce payment of legal money contractual obligation

  14. Derek R
    November 29, 2013 at 8:55 pm

    It is perfectly straightforward for any individual (or group or community) to create money provided they have monopoly control of a resource which everyone else needs.

    Consider the town of Hassi Messaod in the Central Sahara. If one citizen managed to assume control of all the water sources in the town, that citizen could insist that all payments for water must be made in tokens available only from the citizen. The citizen will then be able to use the tokens to pay for goods and services from any other citizen since they will all need tokens to buy water. Any citizen who cannot manage to trade with the water monopolist for tokens will have to trade with another citizen who has already done so. Thus the water tokens will circulate through the population of the town.

    If there was no other currency in HM water tokens would form the local currency in the above scenario. However all citizens also require Algerian dinars to pay taxes. So that too will be money for the well-known MMT reasons. I’m not sure which form of money would be used for day-to-day exchanges. Perhaps both would. That’s a topic for further discussion.

    Any resemblance between the Hassi Messaoud water scenario described above and the current global oil situation is strictly coincidental. Probably.

    • November 29, 2013 at 9:04 pm

      I totally agree with you Derek R. That’s the point : Tax money is king, but a prince could rule if the king is away…

    • November 30, 2013 at 4:53 pm

      But then how do you explain when OPEC seized control of the crude oil market and had basically monopoly control of a very essential “resources which everyone else needs” , they did not “create money” or even use one of their nation’s money as the value to denominate sale contracts in, but instead used the US dollar??? The Keynes-Post Keynesian liquidity theory of money can explain this, Can you??

      • Derek R
        December 1, 2013 at 7:15 am

        Well, I would merely say that OPEC (like my water monopolist) had the choice of creating a new currency and the power to do so. OPEC chose not to. My water monopolist too would almost certainly choose not to. The reasons why they chose (or would choose) not to are governed by the Keynes/Post Keynesian liquidity theory so why would I choose to explain it in any other way?

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