That is some funny stuff.
What is functional finance when the state forces you to use their money, follow their regs and pay their extortion (taxes) at the barrel of a gun?
This stuff is just as crank as public choice.
Not sure if anyone has raised this point yet…
Correct me if I am wrong, but my understanding is that MMT posits that if all the debt were to be paid off there would be no more FRN’s in circulation, not the first time I have heard this. I am thinking that this idea is wrong.
Today we have fully fiat money backed by nothing. But in the not too distant past the FRN was tied to gold. I am thinking that if all debt were to be paid off that their would still be some number of FRN circulating and what is left in circulation would be representative of the sound money that used to be at the base of the total money supply…
depends on what you mean by paying off the debt.
when tsy secs mature the fed debits the holder’s securities account and credits his reserve account.
so cumulative deficit spending then ‘rests’ as only reserve balances at the fed and cash in circulation.
there is no operational imperative to issue more tsy secs, which would mean debiting fed reserve accounts and crediting fed securities accounts.
However, if by paying off the debt you mean running a budget surplus until the cumulative deficits are back to 0, that’s an entirely different matter.
And that last part you discuss simply doesn’t apply. Either the currency is legally convertible at the Fed or it isn’t.
not sure what ‘crank’ means here but it’s real
the state does indeed use a gun to provision itself.
that is, the currency is a public monopoly and taxation is highly/entirely coersive
lerner didn’t ever understand the monetary operations thing, so his interest rate control bit isn’t quite right.
see ny fed chairman Ruml (1940’s) for something similar from someone who did indeed understand actual monetary operations.
i have some of ruml’s writings on my website
My reply was to this:
“The legal characteristics of various types of money are entirely unessential for economic theory.”
No they are not. I can issue money and if It’s not enforced by some kind of law you are not going to accept It as a payment. Do you want to try? I will buy your house with my promissory note and that’s a final payment!!!
Legal characteristics of fiat money are not unessential. Even if It is privately created credit money It is the laws that matter. Money is a legal entity any way, subject to rules and regulations even if It is not government money and even if It is not a promise to pay that government money. Just those rules might be created by private contract then.
For my point of view this sounds a bit like a semantics discussion. Austrians say that the gov:
1: Either taxes people to have money to spend it (neutral on price inflation)
2: Borrows to tax people later for it (also neutral to price inflation)
3: Prints money (mostly disguised as borrowing to deceive the people, not neutral to price level) to spend money
Mr Mosler is saying that, given the current monetary system the government could technically suspend taxing entirely, and can still spend its money because the FED can provide it with the “funds” necessary by bookkeeping, or in common terminology money printing. But if it does not tax anything, then this would be of course highly price inflationary. If it “withdraws” (taxes) the same amount it is causing enough deflation to offset the inflationary effects of its spending. (Although this might have no overall price inflationary effect it still shifts income and the price- and capital-structure etc.). Hence he could technically describe taxing as deflationary and government spending as inflationary. And since fiat money is not tangible and government has the monopoly, it really doesn’t make a difference if the gov really spends the $100 note taxed, or if it scraps it and creates a new one.
→ Making the government the overall scorekeeper.
But this has no effects on any economic law. The government in fact is keeping the charade with taxing and borrowing up to deceive the people. Trust in the USD would shrink drastically worldwide if they would really communicate/handle it as Mr Mosler is describing it, making it quite possible that it is not accepted at all anymore! And then the scorekeeper lost his power and his notes might not be able to provide him with real goods and services any more. This finally is not a table top game the players cannot escape.
This is what the followers of Gesell do not realize. In fact their dream is already realized. Government can spend whenever it wants and needs. It does not really suffer any restrictions on its nominal spending. But it tries to use printing as the last option because it has certain side effects.
Hope I got it right..
"But this has no effects on any economic law. The government in fact is keeping the charade with taxing and borrowing up to deceive the people. Trust in the USD would shrink drastically worldwide if they would really communicate/handle it as Mr Mosler is describing it, making it quite possible that it is not accepted at all anymore! And then the scorekeeper lost his power and his notes might not be able to provide him with real goods and services any more. This finally is not a table top game the players cannot escape.
This is what the followers of Gesell do not realize. In fact their dream is already realized. Government can spend whenever it wants and needs. It does not really suffer any restrictions on its nominal spending. But it tries to use printing as the last option because it has certain side effects.
Hope I got it right.."
I don’t understand you “is not accepted anymore”. You are not paying your taxes anymore? You’ll end up like Schiff senior. What do you mean? That people don’t want to save anymore? The scorekeeper cannot lose Its power as long It has the ability to tax the economy.
Kristjan,
You don’t know what happens when people lose their trust in a currency?
I know what happens when people lose their trust in the currency but this is not the point here.
((The legal characteristics of various types of money are entirely unessential for economic theory)))
I don’t understand the point of this statement. Are you trying to say that Soviet Union rubles were the same as US dollars? Legal framework doesn’t matter right?
Here is what Esuric said earlier, which should clarify:
In other words, the laws of economics (economic theory) are not subject to legislative revision, but are universally true, irrespective of the legal system, time, place, or culture.
This is a fundamental Austrian position from the earliest days of the Austrian school.
By the way, it might be helpful for all of you to learn how to quote on the Mises forums:
@ Think Blue
Thanks, I was already looking for this thread. But with the keywords “how to quote” it is not findable with the search function. But I tried now with “how+to+quote”. This works..
Thanks anyway!
@ Kristjan
“I don’t understand the point of this statement. Are you trying to say that Soviet Union rubles were the same as US dollars? Legal framework doesn’t matter right?”
AE does state certain economic laws, it does not make the statement that any kind of money (be it Gold, USD, Soviet Rubles or Weimar Marks) has the same qualities (The legal status is of course part of the qualities), far from that, Austrians demand sound money.
Take the law of gravity for example: It says that a mass will accelerate with 9.81m/s² in the direction of center of earth near surface (gravity is decreasing with increasing distance to earth), but only in case of vacuum. Depending on aerodynamic drag, current location, current direction of movement and current speed different objects won’t necessarily perform the same movement with the same acceleration. But this does not mean the law of gravity has changed, just because certain parameters are different. A starting jet does not invalidate the law of gravity. Gravity is still affecting the jet in the same way as it is affecting a falling stone, even if you cannot see it in the moment of the start.
So you can see the legal status as a parameter that has of course an effect on the real world outcome, but not on the law itself.
“The laws of economics don’t need revision every time there are institutional changes. They are laws; they are applicable in any location and at any time. It is precisely because we understand such laws that we can understand the ramifications of such institutional changes.”
No they are not. Monetarily sovereign governments are not to looked like households or non sovereign governments. There are completly different set of rules at play.
You can see this error every day around you when debt hawks scream that interest rates will go up when governments are running deficits. And they are not going up no matter of the size of the deficit. That is a theory that migt be true for monetarily non sovereign governments but not for monetarily sovereign governments.
Like I said completly different set of rules at play. MMT describes that correctly.
No they are not. Monetarily sovereign governments are not to looked like households or non sovereign governments. There are completly different set of rules at play.
Why not? This is a pure assertion.
You can see this error every day around you when debt hawks scream that interest rates will go up when governments are running deficits. And they are not going up no matter of the size of the deficit. That is a theory that migt be true for monetarily non sovereign governments but not for monetarily sovereign governments.
Prove it.
So you are saying that the economic law how interest rates react on higher borrowing from the government is different with a monetarily sovereign government as with a non sovereign government. This is wrong. The only difference is there is a different set of parameters or a different set of rules set by the government itself. But not a different economic law. The law says that if the government borrows more the interest rates will rise, but only if everything else is equal! If the money supply is expanded then an additional factor has changed! The US government does not borrow existing money but newly created money, so this is perfectly in line with the common economic law of how interest rates behave. And so the law will predict, that if the government borrows more, but from the FED, which has unlimited funds of fiat, and does refund the interest it gets from the government back to the government, then interest rates won’t rise necessarily.
Just because so called “debt hawks” are not able to apply this law correctly and miss to take all variables into the equation does not mean the law is wrong!
A different set of rules is not a different economic law. The different set of rules you speak of is set by the government. The economic law still is the same as described above, and I thought I already made clear with the gravity example which should show that different paramaters cause different real world outcomes, though the same law is working
So Æ describes that correctly. If you think different, make a clear example without conflating government rules with economical laws.
“A different set of rules is not a different economic law. The different set of rules you speak of is set by the government.”
Sure rules are set by the government. In regard to economic law you are talking about relations in between different parameters. Am I right? Let’s say one of those is the size of the government debt and the other is the interest rate on that debt. One relation that might hold in one monetary system doesn’t in another. You can call It a law but It’s nothing but a theoretical statement. I got some definition for economic law.
http://www.businessdictionary.com/definition/economic-principle.html
Statement or inter-relationships among economic factors that explains what may cause what, or what may happen under certain circumstances. Also called economic law.
I can safely say that inter-relationships among economic factors are different in a fiat monetary system than they are in a currency board regime. I hope you agree. Not all of them of course.
Besides that the so called economic laws that you are talking about are theoretical. I’ll give you a good example. Most Austrians when they see CPI inflation they blame It on the money supply and the monetarists do too. (well for Austrians It’s monetary expansion anyway-that’s how they even define inflation). For me that law is nonsense.
Best wishes!
Please explain.
@AGB
My position on the money suplly?
Money supply is stock and not flow. What is required is spending. That’s one thing, another thing is we cannot even define the money supply. It’s all credit.
When you help your neighbor clean his yard and he promises to give you apples for It and you go to a local grocery store where the owner knows your neighbor and you give him your neighbor’s promise for a bottle of beer then you just used credit money to pay for the bottle of beer. Your neigbor’s promise to pay got monetized. That’s why we don’t exactly agree where the money ends. For creditarists all the credit is important, even train tickets are. 
But let’s say we all agree what money is and let’s say that somehow that makes it so too. Let’s say It is M1, demand deposits and cash. For growing economy there needs to be more money unless you are expecting deflationary growth(CPI). And that is so even at full emlpoyment. Let’s say there is not full employment just like right now. 10% of labor resources are not utilized(more if you consider underempoyment) What do you think will happen when those people are offered a job? Are they going to demand more money than the people who are working now just because they were offered a job or are they going to be happy to be working at current labor prices? Are the companies going to jack up prices because they have more orders now even if they have the capacity to meet the extra demand? Or are they afraid of losing their market share to their competitors and they are not jacking up prices as long as they have the extra capacity? They can of course jack up prices but I think they don’t.
you cannot just look at the money supply and ignore what is going on in real economy. Just because there is correlation between growth in the money supply and inflation doesn’t mean that growth in money supply causes inflation. You cannot say anything about the causation here because money supply growth has not been targeted for 30 years now and CBs don’t control money supply. And there is not always even correlation.
Sure rules are set by the government. In regard to economic law you are talking about relations in between different parameters. Am I right? Let’s say one of those is the size of the government debt and the other is the interest rate on that debt. One relation that might hold in one monetary system doesn’t in another. You can call It a law but It’s nothing but a theoretical statement. I got some definition for economic law.
So in some systems conditions vary from other systems, and therefore the laws in operation vary too. In a world without gravitational forces, the law of gravity doesn’t hold. It’s nothing but a theoretical statement. I’m not sure what point you think it is you’re making here.
Statement or inter-relationships among economic factors that explains what may cause what, or what may happen under certain circumstances. Also called economic law.
This merely affects which laws are operant or not. Nothing else.
I can safely say that inter-relationships among economic factors are different in a fiat monetary system than they are in a currency board regime. I hope you agree. Not all of them of course.
Which laws of economics does the existence of a fiat monetary system obviate, exactly, and why?
Besides that the so called economic laws that you are talking about are theoretical.
Indeed. What of it? What law isn’t theoretical, exactly?
I’ll give you a good example. Most Austrians when they see CPI inflation they blame It on the money supply and the monetarists do too. (well for Austrians It’s monetary expansion anyway-that’s how they even define inflation). For me that law is nonsense.
That’s nice, but it’s purely your opinion.
you cannot just look at the money supply and ignore what is going on in real economy. Just because there is correlation between growth in the money supply and inflation doesn’t mean that growth in money supply causes inflation.
Growth in the money supply is inflation. You’re talking about price increases. Correlations are neither here nor there. Austrians argue only an expansion of the money supply can occasion a general increase in the price of goods, because absent it money will simply be diverted from less valued goods to more highly valued goods which have grown more expensive, which will not occasion a general rise in the price of goods.
You cannot say anything about the causation here because money supply growth has not been targeted for 30 years now and CBs don’t control money supply. And there is not always even correlation.
Of course there increases in the money supply are not always followed by a straightforward increase in prices across the board, because other things are not necessarily equal (e.g. productivity increases might lower the price of a good that is otherwise being chased by more money than before.) BTW, central banks definitely do control the Ms but not directly by printing money. Rather, they do so indirectly in the form of their dual mandate of maintaining price stability (low “Inflation”) and high employment, usually in the form of open market operations. They also influence capital and reserve requirements for banks and therefore the pace of credit expansion. It’d help to know what Austrian theory is before repudiating it.