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Post by Antti Jokinen on Nov 6, 2017 14:48:40 GMT
JP, let me try to define your 'final settlement'. It's the moment when the tax authorities can verify that a tax payment, which is always made by delivering goods, has taken place. Correct? The authorities adjust records so that the payment is correctly accounted for. Why do we then say that one can pay taxes with these notes, or that the notes are government IOUs? (I assume now that we can show that any notes issued by the government work much like the 'receipts' in 3e.) Here's Wray (first paragraph of his blog post): Are taxes paid in these notes? Has the government issued a debt it "must take back"? Or is that just a confused way to describe what really happens here? I have to side with Lonergan on his criticism of Wray's language.
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Post by Antti Jokinen on Nov 6, 2017 19:44:46 GMT
I'm not sure that anything interesting happened between 3b and 3e---each contains different details about how ultimate settlement is to proceed. You're right. That just proves that the notes/receipts are not that relevant when we are talking about the actual tax payments and the government's records pertaining to the tax payments. Doesn't it? The notes are just one way to pass information to the tax authorities about the payment that has taken place. As you say, the big leap happens between 3 and 3a, because having ordered the taxpayers to pay directly to the horse trader, and not via the Treasury, the government cannot anymore record the payment made by a taxpayer in real time. There's a lag between the payment and recording of that payment.
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Post by JP (admin) on Nov 7, 2017 18:53:05 GMT
JP, let me try to define your 'final settlement'. It's the moment when the tax authorities can verify that a tax payment, which is always made by delivering goods, has taken place. Correct? The authorities adjust records so that the payment is correctly accounted for. Why do we then say that one can pay taxes with these notes, or that the notes are government IOUs? (I assume now that we can show that any notes issued by the government work much like the 'receipts' in 3e.) That definition seems right. In the particular world you've created, we can't say that one pays taxes with notes. The notes are just a receipt, or an evidence of payment. The actual tax is paid in goods, and the notes are simply a form of proof that can be used to cancel, or settle, the tax debt. Here's Wray (first paragraph of his blog post): Are taxes paid in these notes? Has the government issued a debt it "must take back"? Or is that just a confused way to describe what really happens here? I have to side with Lonergan on his criticism of Wray's language. Unfortunately I don't have time to read through the Wray/Lonegran debate. But in the end I think the key point for any MMTer is that the value of paper money is upheld by the government's acceptance of that paper as a medium for discharging tax debts. So I don't see why they would have any reason to disagree with the world you've sketched out. Whether the government uses the horse trader as their agent for distributing tax receipts (3a to 3e), or it spends them directly into the economy, it is the promise that £x worth of notes cancels £x worth of tax debts that regulates their value.
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Post by Antti Jokinen on Nov 7, 2017 20:03:15 GMT
JP, let me try to define your 'final settlement'. It's the moment when the tax authorities can verify that a tax payment, which is always made by delivering goods, has taken place. Correct? The authorities adjust records so that the payment is correctly accounted for. That definition seems right. In the particular world you've created, we can't say that one pays taxes with notes. The notes are just a receipt, or an evidence of payment. The actual tax is paid in goods, and the notes are simply a form of proof that can be used to cancel, or settle, the tax debt. OK, we agree. Good. When it comes to this "particular world", do you think we could describe the real world today in the same way? You don't pay your rent by getting your landlord's account credited, but by delivering goods (incl. services, incl. labor) to anyone. The account entries are just a way to keep track of goods owed to you/your landlord by others, or goods owed by you/your landlord to others. Oliver pays his mortgage debt by drawing some lines (I assume that's what an architect does) and the bank cancels a portion of his mortgage debt when it credits the mortgage account. (Yes, I'm hijacking this thread and moving the discussion towards the "TOM view"... Just let me know if you want to continue on colonial currency. I'll comment on what you said about MMT a bit later.) Short comment here. You said: In 3e it does spend them directly into the economy. Right?
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Post by JP (admin) on Nov 8, 2017 3:37:21 GMT
When it comes to this "particular world", do you think we could describe the real world today in the same way? I'm still mulling it over. Maybe not. Or maybe it's one of many ways to describe the real world, just like there's many ways to skin a cat. In which case it might provide some interesting insights that other views points can't offer. I do think that trying to describe the TOM world by referring to a real world example--colonial money in this case--helps the exposition, at least it does so in my case. But I'm a sucker for examples. (Yes, I'm hijacking this thread and moving the discussion towards the "TOM view"... Just let me know if you want to continue on colonial currency. I'll comment on what you said about MMT a bit later.) Short comment here. You said: In 3e it does spend them directly into the economy. Right? Right. I think the key point in that particular sentence is: "it is the promise that £x worth of notes cancels £x worth of tax debts that regulates their value." That being said, I'm not an expert on MMT so I could be wrong in my description of them. It would probably be helpful if an MMTer joined in on this discussion.
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Post by Antti Jokinen on Nov 8, 2017 12:34:23 GMT
Yes. I think MMTers should, in the end, agree with me. Do they? I don't know.
Lonergan says the government doesn't owe the noteholders anything. Wray says it owes them "redemption", and this makes the notes government IOUs, debt. Lonergan says this is not what debt is. (Lonergan actually defines debt as 'money owed', but must be smart enough to admit that debt can also be 'goods owed'.)
I say the taxpayers owe goods to the horse trader, and that the purpose of the notes is to track the taxpayers' payments to the horse trader. I don't think Lonergan agrees on that one, as he seems to think along the same lines as Friedman who insisted that "fiat money" (does exist, and) is net wealth for the community as a whole. Wray should agree with me. But Wray might have trouble accepting that the notes are not really government IOUs. The notes are not debt, nor IOUs, but an instrument to keep track of debts (although this is not as clear in the case of Treasury notes as it is in the case of CB notes; the former are more intimately connected to debt than the latter).
When it comes to the bigger, contemporary picture, with a central bank, Lonergan says that the central bank doesn't owe anything to holders of its notes. Wray says those notes are government/CB liabilities. Last time I checked, JP Koning agrees at least somewhat with Wray? But as I explained in the beginning of the TOM thread, in my opinion we shouldn't call these notes CB liabilities, even if the CB is expected to do its best to maintain a stable price level. Instead, it would be better to view the CB much like a LETS operator, whose credit balances are not his liabilities, but are matched by liabilities found on the member accounts with debit balances (the LETS operator in his official role, too, can own such an account; this is comparable to real assets on the CB balance sheet).
You said:
It is. I have ended up with this point of view because I couldn't fully make sense of the (macro) world by following others' descriptions of it. It is also telling that we still have smart people (including economists) who don't think money is debt, while others do. The ones who don't think money is debt view it usually as net wealth for the community as a whole.
What I'm offering is a third way: Money is not debt, and it is definitely not net wealth. Money is a credit, a claim, without being anyone's debt in itself. The debt is to be found elsewhere. Credit = debit only at the aggregate level, so that the credit-holder cannot demand goods from a debit-holder (one with a debit balance; a liability to deliver goods to others). There's no 1-to-1 creditor-debtor relationship to be found. (Here's a clear link to a "gift economy", where there are no straightforward creditor-debtor relationships. The society around a suspected free-rider can try to coerce him to give back, contribute, but we cannot point to a certain creditor who would be in a position to demand goods from this person.)
We can put my theory* through some quick and dirty real life tests:
Can you walk to someone with a Fed note, tell him he owes you, and collect your dues? No, you cannot. Do people give you goods voluntarily if you give them the note? They do. The sellers who hold debit balances/are in debt, can they walk to a bank, give the banker the note they got from you, and get some of their debt written off (much like the government wrote off a tax obligation in our example)? Yes, they can. (Think of One Bank, or the Fed, for now. It's slightly more complicated with a Fed note and a debt on the books of a commercial bank.)
* There have been many people before me who have suggested something along the same lines (just to name one: Georg Simmel in The Philosophy of Money talked about money being a "claim upon society" and banks occupying a position between an individual and the society--no doubt a view shared by many others). But I haven't found anyone who would have dealt so explicitly, and in detail, with the actual accounting.
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Post by JP (admin) on Nov 8, 2017 16:49:51 GMT
I say the taxpayers owe goods to the horse trader, and that the purpose of the notes is to track the taxpayers' payments to the horse trader. I don't think Lonergan agrees on that one, as he seems to think along the same lines as Friedman who insisted that "fiat money" (does exist, and) is net wealth for the community as a whole. Wray should agree with me. But Wray might have trouble accepting that the notes are not really government IOUs. The notes are not debt, nor IOUs, but an instrument to keep track of debts (although this is not as clear in the case of Treasury notes as it is in the case of CB notes; the former are more intimately connected to debt than the latter). In the case of colonial currency, the Virginian government set a tax penalty on all citizens that could only be erased by bringing a certain quantity of coloured paper chits to a government tax official. Were those chits a government IOU, like Mike Sproul would say? Maybe. The government promised to erase a citizen's debt when the paper was presented--so we might be able to say that the government owed something to the note's owners. Or were the chits just an instrument to track debts? Maybe. But even if they were just record keeping devices, their value still originated from the Virginian government's decision to set those notes as twintopt, or the acceptable medium for discharging tax debts. The idea of twintopt is at the core of MMT (or at least one of the things at its core), and you haven't done anything to contradict it. So I think you and Wray might get along
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Post by Antti Jokinen on Nov 9, 2017 19:00:57 GMT
You're right, we're not that far apart. I've now tipped Wray about the existence of this thread -- we'll see if he finds time to comment.
I'd still like to try to tease out our possible disagreements, hoping that it would help us get to the bottom of this matter.
You said:
In my 3a, the government also promised to erase a citizen's debt when it was able to verify from the trader's list that the citizen in question had indeed paid his share of public debt to the trader. The notes in 3b just introduced a receipt which would save the taxman's journey to the trader. Having ordered a taxpayer to deliver goods worth £5 without getting any goods in return (that's taxation), and having received a proof that the goods have been delivered, the government of course in some sense owed it to the taxpayer to NOT demand he'd give up, say, another £5 worth of goods. It owed it to the taxpayer to consider the debt being paid. But it seems clear to me that this was not a £5 debt by the government, to the taxpayer.
Actually, if we are to argue convincingly that the notes are government IOUs, the notes need to be convertible into coin at the Treasury (which I find to be somewhat antithetical to Wray's thinking). As I explained earlier, once all taxes are paid, and there are still notes outstanding, then there's no public debt (budget deficit), but there is Treasury debt. The Treasury owes £5 of commodities to a noteholder. This would allow us to say, with some accuracy, that before the taxes are paid, the taxpayers owe the government £5 in taxes and the government owes any noteholders £5 of commodities (to be delivered at a later point in time), and so these debts can be cancelled out if a taxpayer presents a note at the tax office.
Remove the convertibility and the notes become a pure recordkeeping device, the purpose of which is to make sure that the horse trader receives goods from the public because he has given his horses to the public use. The taxpayers owe goods to the horse trader, not the government, and the government only owes it to all parties that it makes sure that each taxpayer pays his due, not more, not less (to achieve this, it keeps records).
Does this make any sense?
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Post by JP (admin) on Nov 10, 2017 16:47:22 GMT
"But it seems clear to me that this was not a £5 debt by the government, to the taxpayer."
Maybe not precisely a debt or an IOU. But a Virginian note represented sort of government obligation to the taxpayer. Say that John owed the government $5 in taxes. By presenting the $5 note to the government tax office, John's $5 tax debt was settled and erased. No note, and the government was under no obligation whatsoever to erase John's $5 debt. If John had paid his tax to the horse trader but had lost the note along the way, he was out of luck. So there was some sort of contract embedded in the note, a contract between the state and the bearer of the note, that only presentment of the note could trigger.
I have a spreadsheet that keeps a record of all the people I owe money to. I can print it out, and it becomes a paper record of my debts. But there is no contract embedded in the sheet of paper. It does not obligate me to perform any specific duty. It's just a convenient list to help me record my financial affairs. The $5 note in John's wallet, on the other hand, is more than just a piece of paper with some book entries on it--it is a commitment on the part of the government to do something. Is it an IOU? or a debt? or a promise? or an obligation? It doesn't really matter the exact word. Let's call it X. This X is sufficient to imbue a piece of paper with real value.
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Post by Antti Jokinen on Nov 11, 2017 14:20:25 GMT
JP, you seem to recognize the viewpoint that taxes are actually paid in goods (at least in my example). Now you say that a note is maybe not precisely a government IOU. That makes me happy, because to me building a theory is about trying to describe the phenomena under study in a precise way. The Lonergan-Wray debate would have never taken place, at least not in the form it did, if the language used by both parties had been precise.
I can very well agree that there was some kind of contract embedded into the note, and that this contract gave the note real value.
If I owe you an ounce of gold of certain purity, I would find it confusing to say that you owe me something worth the same, just because you as a creditor are obliged to write off my debt to you if I deliver you an ounce of gold of the said purity. Your obligation does exist even if there's no note, right? So it's not that using a note would add a new kind of obligation. We are in both cases talking about an obligation to write off a debt when the debt has been paid. The one writing off the debt -- and this can be a creditor or a third party bookkeeper -- must of course be able to verify that the debt has truly been paid. You might weigh the gold and check its purity, before you write off my debt. The government demands a note as a proof that the debt has been paid. Both are verification methods.
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Post by Antti Jokinen on Nov 11, 2017 14:48:27 GMT
As you like examples, here's one:
I go to Ikea and buy a sofa. I go through the cashier, wipe my credit card, receive a receipt which I'm told to take to a guy at a warehouse close by, and he'll give me the sofa. The receipt is an Ikea IOU. Ikea owes me a sofa. If I lose the receipt and the finder of it picks up the sofa, I will probably not get the sofa (I don't know how nice they are at Ikea). I also have a contractual obligation to consider Ikea's debt to me extinguished when I receive the sofa, assuming the type and condition of the sofa is as I could reasonably expect it to be. Ikea marks the receipt to make sure that I don't try to break the contract and demand another sofa. Ikea owed me a sofa. I had some kind of contractual obligation, but it would be very imprecise to say that I was in debt to Ikea, or that there was my IOU involved here.
Let's now assume that I gave the Ikea cashier a check, instead of using my credit card. And the check bounced. Now the contract says that I owe Ikea a sofa. I have to return it. It's still in the original wrappings, so I take it to the same warehouse where I picked it from. The guy at the warehouse cannot find me in their computer system, so he's not able to register the return of the sofa (this would have automatically led to my debt being written off). Instead, he writes me a receipt which proves that I have returned the sofa I owed to Ikea. He asks me to go to their accounting department, which happens to be located next to the warehouse. I present the receipt at the accounting department and they write off my debt. There was a contract embedded into the receipt and this contract gave the receipt real value.
Was there a debt from Ikea to me after I had returned the sofa? Was the receipt I got from the warehouse an Ikea IOU? My answers are "no", and "no". The receipt was used to submit the proof of my returning the sofa to the accounting department, a proof that would have arrived electronically from the warehouse in a normal situation.
OK. This was probably not necessary at all. You and I agree that there's a contractual obligation to write off a debt when certain criteria are met. We might also agree that the words 'debt' or 'IOU' do not describe this obligation in any precise way?
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Post by JP (admin) on Nov 12, 2017 4:20:18 GMT
"I can very well agree that there was some kind of contract embedded into the note, and that this contract gave the note real value."
Good, but isn't the substantial part of the debate done, then?
Everything else after that is a semantic debate over what to call the variable I referred to as X. I have no problems saying that X could be any of debt, liability, promise, obligation, IOU, due, or commitment. As evidenced by your Ikea example, you seem adamant that X should not be either a debt or an IOU. If we were lawyers and there were millions of dollars at stake, getting this right would be important. How important is the debate over X?
Maybe I am missing something because I haven't read the Lonegran/Wray debate. Was it over semantics?
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Post by oliver on Nov 12, 2017 13:04:46 GMT
"I can very well agree that there was some kind of contract embedded into the note, and that this contract gave the note real value." Good, but isn't the substantial part of the debate done, then? Everything else after that is a semantic debate over what to call the variable I referred to as X. I have no problems saying that X could be any of debt, liability, promise, obligation, IOU, due, or commitment. As evidenced by your Ikea example, you seem adamant that X should not be either a debt or an IOU. If we were lawyers and there were millions of dollars at stake, getting this right would be important. How important is the debate over X? Maybe I am missing something because I haven't read the Lonegran/Wray debate. Was it over semantics? To use different language, one could say that there is money, your X, which is some kind of contractual obligation. And then there is money's object, namely the good that was traded which defines the value of money / X. X needs to have specific properties to function as money, one of which is that it must be accepted by its issuer as proof of having payed one dues. The issuer must also be trusted as a neutral authority by as many people as possible and be a guarantor of uniform standards for creditors and debtors. The way I understood the Wray / Lonergan debate (without going through it again) is that Wray would probably agree somewhat with the above. I think Lonergan OTOH would not agree that it is 'money's object' that 'defines the value of money / X'. As far as I've understood him there is some additional network effect, the strength of which will define whether 1$ is worth a peanut or a house. But maybe I've misunderstood him.
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Post by Antti Jokinen on Nov 12, 2017 19:26:09 GMT
Maybe I am missing something because I haven't read the Lonegran/Wray debate. Was it over semantics? Here's Lonergan: Lonergan thinks this was over semantics, because he takes Wray to not really mean debt, and admit it, too. As far as I know, Wray doesn't agree. To him, both government and taxpayer were simultaneously debtors and creditors, and redemption freed both of debts. If I owe you a horse, and I happen to get my hands on your IOU which says you will give a horse to its holder on demand, then we are both freed of our debts when we meet and I hand over your IOU to you. No horse exchanged. Replace the horse with £5, and we have what I take to be Wray's argument. Lonergan doesn't agree, because there's nothing the government has promised to give a noteholder. * The government takes from the taxpayer the £5 note, which Lonergan says is not an IOU, and doesn't give anything back. It's like the government taking a horse from the taxpayer: no mutual debt. As far as I know, Lonergan cannot explain why the notes were burnt in Virginia. Wray can. If there was, like Wray says, a mutual debt between the taxpayer and the government, it would make all the sense in the world to burn the IOU of the government and write off the taxpayer's tax debt. So far, so good. Now we get to my Ikea example: Let's further assume the clerk at the accounting department burns the receipt, so that no colleague of his could sell it to another person who happened to owe a sofa to Ikea. Wray would say the receipt was an Ikea IOU. Ikea owed me and I owed Ikea, so both of us were freed from our debts. I think Lonergan would say that I owed Ikea a sofa, while Ikea owed me nothing. The receipt was definitely not an Ikea IOU. Lonergan has a point, right? Had the receipt said that Ikea owed me a sofa, then it would have been an Ikea IOU. In that case the accounting department wouldn't have cared whether I had returned the sofa to the warehouse or not. Our mutual debts would have been written off. But in this case the receipt was written to let the clerk know that I actually had returned the sofa to the warehouse. This was information the clerk was interested in. Me returning the sofa to the warehouse was what led to my debt being written off by the clerk. The clerk needed to verify that I had paid my sofa debt by returning the sofa, and he took the receipt as a proof that I had done so. To me, X is that receipt, or something very similar. Do you now see why I'm against calling X an IOU? If we call X a receipt, then Lonergan has to come up with a new argument. (The Lonergan-Wray debate is one out of hundreds of similar debates. I just picked it as an example. And I'm far from the first one to call money a 'receipt', aren't I?) * Other than a new note, which doesn't count. Here Wray will not point to the Virginia Treasury's promise to give specie to the noteholder, because it has nothing to do with the MMT argument about taxes driving money.
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Post by Antti Jokinen on Nov 13, 2017 19:27:48 GMT
JP, here's my earlier list of options: Replace horse trader with 'warehouse guy' and tax office with 'accounting department', and we have my Ikea example. Let's say that in 3a, instead of tax authorities visiting the trader, the trader would send his list to the tax authorities. The tax authorities would have, to follow your earlier wording, committed to do something when they receive the list of names. They would have committed to write off the tax debts of people found on the list. Likewise, in 3b-3e, the tax authorities have committed to write off the tax debts of people who present a receipt at the tax office. But you say that the receipt/note itself is a commitment on the government's part to do something. And that's why we could call the note an IOU, or debt, or a promise, or an obligation. That I don't understand. And I think it is very important to get this right, because there are trillions of dollars at stake here.
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