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Post by Antti Jokinen on Nov 26, 2017 19:49:08 GMT
I hope I don't sound like a crank. We agree on more than we disagree on, as usual. I'm just trying to tease out the most exact way to put things.
Step 2 and step 3 intersect, in multiple ways.
First, if we think of the central bank, there's the question of central bank independence. Both the government and the central bank, the former more directly than the latter, get their mandate from the people. I don't think the central bank can be a wholly autonomous, technocratic body. It must have legitimacy (something Draghi has been worried about in the case of the ECB). One could perhaps argue that to some extent Volcker's Fed, for instance, had earned its legitimacy directly from the people, but usually the publicly elected government stands between the central bank and the people. The central bank has control over the commercial banks, and together they form our recordkeeper.
Second, as I tried to say yesterday, the government itself is a debtor only to a small extent (today even less than in the colonial world). The rest, including the notes in circulation (credit balance) and public debt (debit balance), is LETS-like recordkeeping. Does this really differ from the central bank which used to owe gold, and still carries property, plant & equipment which I argue is a liability to it? Connected to this, from my point of view, a central bank which we say has "promised to redeem notes for gold" has in fact promised to sell gold at a fixed price to any noteholder. If it then runs out of gold to sell, or otherwise decides to stop selling gold ("cancels gold convertibility"), no problems ensue if people trust that the liabilities on the LHS of its balance sheet are solid. If we talk about a promise to (buy and) sell gold at a fixed price, then the notes, or credit balances in general, are not CB liabilities; we're within the LETS system.
You said:
I'd suggest some small amendments, based on what I say above. In (a), the notes are not exactly a promise to pay out gold, but the bank has promised to sell gold at a fixed price to noteholders. Sounds like a small difference, but this allows us to think of the bank as not someone whose liabilities the notes are, but as one of the debtors in a LETS-like system. I already discussed (b) yesterday, and the same applies there: the government is just one of the debtors in a LETS-like system. And (c) doesn't have anything to do with "handing over goods/specie to creditors", does it?
So to me the problem with calling the notes --or credit balances in general-- a 'liability' has nothing to do with "handling other people's goods". Under the gold standard, the central bank was liable to sell gold at a fixed price to noteholders. That was really the CB's liability, but only to the extent it had gold. Once it ran out of gold, it told people that it won't be selling gold anymore. It got out of the gold selling business and focused on the recordkeeping task alone (though it probably participated in the gold selling business due to recordkeeping reasons: price stability, and so forth). You see? The liability was the CB's promise to sell the gold it had. The notes were not the CB's liability. The notes are LETS credits, not directly linked to any particular debtor. The bank, or the government, can be among the debtors in the LETS system.
I hope I haven't lost you? You push me to think more deeply. I don't think I'm really arguing against what you say. Rather, I'm discussing it -- or speaking past you.
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Post by oliver on Nov 27, 2017 16:35:42 GMT
I hope I haven't lost you? You push me to think more deeply. I don't think I'm really arguing against what you say. Rather, I'm discussing it -- or speaking past you. No worries. I've just got too much work going on right now. It'll probably be the weekend by the time I get to read your reply properly and come up with an adequate answer.
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Post by Antti Jokinen on Nov 27, 2017 19:17:56 GMT
That's fine, Oliver! No hurry. Thanks for informing me & good luck with the work stuff!
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Post by JP (admin) on Dec 2, 2017 15:31:33 GMT
Do you agree that this LETS operator has a role comparable to the colonial government in our earlier example? I argue it has, and here's why: Could be. To tell the truth, I think I have lost track of all the abstractions we have piled on top of the original example. Do you think the "smoke signal", or the message, going to the LETS operator is a liability/debt to the LETS operator? Thinking out loud... the smoke signal I described is pretty much like a cheque. A cheque is the physical embodiment of a verbal order that a bank is obligated to perform, and that obligation to perform the duty, combined with the presence of funds in the cheque writer's account, is what gives the cheque its value. Is a cheque the liability or debt of the bank? The cheque writer is telling the bank to transfer the cheque writer's own funds, not the bank's funds, so it is certainly a liability of the cheque writer. No bank will recognize a personal cheque that is on the way to being cashed as its debt. So without sufficient funds in the writer's account, the cheque will be worthless. Likewise, if the bank refuses to follow the orders on the cheque, even if there are sufficient funds, the cheque is worthless. So there is a set of duties taken on by both parties that provides the cheque with a positive value, enough so that it can circulate as money. A bank deposit, on the other hand, is a direct liability of the bank. (Oh dear, I just realized I've introduced another layer of abstraction).
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Post by Antti Jokinen on Dec 3, 2017 21:40:45 GMT
JP, this is good. As one of my favorite thinkers, Jacob Bronowski, said: I'm trying to show you that when we look at the central bank--or even the colonial government--from a certain angle, it will look much like a LETS operator who doesn't owe nor is owed to, and instead keeps records of other people's debts and credits. You don't (yet) see the likeness, but that, I argue, is because you look at the central bank from a different angle: the more conventional one where notes/"deposits" are its IOUs, debts ("a direct liability of the bank" in the end of your last comment has this meaning, I assume). Now you compare the smoke signal to a cheque. I agree there's a likeness between these. Both are an order to the recordkeeper to make certain entries on his ledger: typically *, to credit the account of the one who delivered/sold goods and to debit the account of the one who received/bought goods. It is expected that the recordkeeper will make these entries; we could say he is obliged to make these entries. Yet, we agree that this obligation doesn't make the order the recordkeeper's debt. In the same way, an order to a LETS operator to make certain entries cannot be said to be his debt, even though he is obliged to make the entries instructed. But the smoke signal isn't a liability of the horse trader either, is it? Had he written a cheque instead, you would say the cheque is his liability. Or is the smoke signal perhaps a liability of the horse trader in the same way the cheque is? Namely, that if the smoke signal/cheque "bounces", so that the bank/government doesn't make the expected credit entry/write off the tax obligation, the taxpayer can go back to the horse trader and demand him to make that credit entry happen. * In the case of the smoke signal, we can use our imagination here and assume that the government credits the horse trader's account when it buys the horses from him and debits a public debt account. Then it imposes a 'poll tax', and credits the public debt account and debits individual taxpayers' accounts (creating a tax obligation/an order to deliver goods to the horse trader). When the horse trader then sends smoke signals, the government debits his account and credits the taxpayer's account. In this setting, the government will credit the account of the one who delivered goods and debit the account of the one who received goods, just as in my typical example which applies to a cheque as well (and is compatible with a LETS system, too).
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Post by JP (admin) on Dec 4, 2017 5:46:57 GMT
But the smoke signal isn't a liability of the horse trader either, is it? Had he written a cheque instead, you would say the cheque is his liability. Or is the smoke signal perhaps a liability of the horse trader in the same way the cheque is? Namely, that if the smoke signal/cheque "bounces", so that the bank/government doesn't make the expected credit entry/write off the tax obligation, the taxpayer can go back to the horse trader and demand him to make that credit entry happen. No, I suppose the smoke signal isn't really a liability of the horse trader. If the smoke signal "bounces" but the horse trader has issued a paper receipt as proof of payment, then he is liable to redo the smoke signal until it goes through. I suppose that's a type of liability. But it's not quite the same as a cheque.
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Post by Antti Jokinen on Dec 4, 2017 14:48:06 GMT
How does the liability related to the check differ from what you just described?
Let's assume the horse trader is liable for making the government write off the (poll) tax debt of the taxpayer. Taxpayer gives up goods and horse trader, in return, makes the tax debt disappear (by reporting to govt, which then credits the taxpayer's tax debt account). That's the deal. If he cannot make the credit entry happen, then he must return the goods.
Isn't it the same in the case of a check? If the bank doesn't credit the account of the one presenting the check, then the writer of the check must either try again or return the goods.
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Post by JP (admin) on Dec 5, 2017 5:21:46 GMT
How does the liability related to the check differ from what you just described? Let's assume the horse trader is liable for making the government write off the (poll) tax debt of the taxpayer. Taxpayer gives up goods and horse trader, in return, makes the tax debt disappear (by reporting to govt, which then credits the taxpayer's tax debt account). That's the deal. If he cannot make the credit entry happen, then he must return the goods. Isn't it the same in the case of a check? If the bank doesn't credit the account of the one presenting the check, then the writer of the check must either try again or return the goods. Well I suppose that depends on the name written on the cheque. If the horse trader writes a cheque to bearer, so that anyone can use it to order the government to wipe off their debt, then it can become a general medium of exchange. If the cheque has a specific name on it, say John Doe, then Jack Smith won't accept it as a medium of exchange since only John Doe can invoke the command to extinguish the debt. In the case of a horse trader's smoke signal that doesn't work out, the receipt probably wouldn't be written to bearer. By necessity it would have the customer's identity on it as a proof of purchase. Since only one person can force the horse trader to return the goods in case of failure, a receipt couldn't really be passed on like money, as least not like the above bearer cheque.
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Post by Antti Jokinen on Dec 5, 2017 14:28:20 GMT
OK. So the liability of the horse trader (to return goods if tax debt is not written off) is more or less the same in both cases, but what differs is whether a receipt/note circulates or not? I don't see it would matter that much to the horse trader whom he is liable towards.
I would say that even the check isn't an IOU of the horse trader. It's an order to the bank/govt to make certain entries.
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Post by Antti Jokinen on Dec 6, 2017 15:57:41 GMT
What I'm saying is that the smoke signal, which we agree isn't anyone's IOU, works much like money in that it's a way to let the government know that goods have been given up by the taxpayer. Money does circulate, but does it need to be an IOU for it to circulate? Can't we say that what circulates is a message -- a way to let the government know that goods have been given up?
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Post by JP (admin) on Dec 7, 2017 5:15:46 GMT
The original Virginian notes worked like money because they could be passed off from hand-to-hand multiple times before ever being submitted to the government to cancel the debt. You can't pass a smoke signal around. A cheque can also pass from hand-to-hand, much like a banknote (as long as that cheque is pay to the order of bearer). So perhaps it is the encoding of the message onto a medium that people can possess that gives it the function of money? Dunno.
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Post by oliver on Dec 9, 2017 13:14:54 GMT
If, instead, the government collects all taxes in specie (no note system), then it will hold specie while there will be no nominal claims against the government / no credit balances in its ledger. This makes it different from a company. And this is the reason why I don't like to think the government has a balance sheet. The government is like a big family, and a family doesn't really have a balance sheet. We can think of net worth and take it to be equity, but there are no shares, no contracts. A balance sheet was created for the purposes of a company, not for the purposes of a family or a government. This doesn't mean it's wrong to think in terms of a balance sheet when one thinks about a family, but one should recognize the difference. I'm not quite sure I understand that distinction. OK, a government can tax without issuing a receipt and claim it is doing so in the public interest (or not, depending on where you are, historically or geographically). And in most places companies cannot do that, except maybe in southern Italy :-). But the surely the general principle is the same? Yes, I agree with that. I was merely trying to point out that if government or a firm for that matter, has goods, these do not belong to the executive in person. Again, there's exceptions to that rule. And it is in that sense that one can understand the concept of a liability. The bank may have house money (specie or gold) but there is an fiduciary responsibility attached to it. An obligation towards the stake holders. The same goes for government, I'd say, no matter whether it issues notes against its assets or not. But anyway, I've lost track of my own argument and I can't find anything in your's I fundamentally disagree with. So I'll rejoin the current discussion.
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Post by oliver on Dec 9, 2017 13:27:48 GMT
The original Virginian notes worked like money because they could be passed off from hand-to-hand multiple times before ever being submitted to the government to cancel the debt. You can't pass a smoke signal around. A cheque can also pass from hand-to-hand, much like a banknote (as long as that cheque is pay to the order of bearer). So perhaps it is the encoding of the message onto a medium that people can possess that gives it the function of money? Dunno. Can you pass around credits on your bank account? You can send an electronic order (modern day smoke signal) to the bank to credit someone else's account and debit your's accordingly. You cannot do the opposite (order to have your account credited) without prior consent by the creditor. Why would I do that? Because I trust one unit of a bank's account to be worth an equal amount in goods as those I gave up to whomever I present it. If I sell a banana for $1 today, I expect to be able to purchase goods of equal value with that credit tomorrow. And our claim is that that is so because we trust the LHS of the record keeper's balance sheet meets the same, constant standards. That is what keeps money's worth in goods stable, what makes it accepted and what distinguishes it from things like bitcoin which has no LHS.
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Post by Antti Jokinen on Dec 9, 2017 20:17:36 GMT
The original Virginian notes worked like money because they could be passed off from hand-to-hand multiple times before ever being submitted to the government to cancel the debt. You can't pass a smoke signal around. A cheque can also pass from hand-to-hand, much like a banknote (as long as that cheque is pay to the order of bearer). So perhaps it is the encoding of the message onto a medium that people can possess that gives it the function of money? Dunno. Sounds right to me. I don't know if there's something we still disagree on. I think we are more or less in agreement on these: 1. The smoke signal is a way to let the government know that Taxpayer A has delivered goods worth £5 to the horse trader -- and has not received any goods in return. The signal isn't anyone's debt/IOU. 2. The Virginian notes were a way to let the government know that goods have been delivered to the horse trader (the first recipient of the notes), if not directly by Taxpayer A, then indirectly, so that Taxpayer A has delivered goods worth £5 (without receiving any goods in return) to someone who has delivered goods worth £5 (or more; this person could have initially received more than one £5 note from the horse trader) to the horse trader, or to someone who has delivered goods to someone... etc. The notes, passing from hand to hand, allow the taxpayers to deliver goods indirectly to the horse trader. The notes are like a "bearer smoke signal", hovering from person to person, with the last taxpayer-holder adding his name to the signal just before it reaches the tax office. Like the smoke signal, the note isn't anyone's debt/IOU. How does that sound? I've been arguing all along that the notes are best understood not as debt/IOUs of the government, or anyone else, but as records that say that the holder has given up goods without receiving anything in return (this is what the tax office wants to hear -- paying your taxes is about giving up goods without getting anything directly in return; hopefully we all receive 'public goods' in return).
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Post by Antti Jokinen on Dec 9, 2017 20:40:21 GMT
Can you pass around credits on your bank account? You can send an electronic order (modern day smoke signal) to the bank to credit someone else's account and debit your's accordingly. You cannot do the opposite (order to have your account credited) without prior consent by the creditor. Good point! I like the "modern day smoke signal". Your last word, 'creditor', seems wrong, though. Generally, there are no creditors or debtors in these meetings. The account which is being debited could as well have a debit balance, in which case you should have said 'debitor', not 'creditor'. Right? And that's the best argument against "passing around credits". The one whose account is being debited might not have any 'credits', yet the other account is being credited and might end up with (more) 'credits' -- or a smaller debit balance. (I assume you agree.)
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