[Martin Taylor 2015.07.18.22.40]
[From Frank Lenk 2015.07.18.1009 PDT]
Martin ï¿½ I have only briefly read the intros to both papers, but I would agree they are on the right track. First, Keynes was concerned about a lack of effective demand from the private sector and viewed private sector savings as a leakage from the spending that keeps the economy going, recognizing that one personï¿½s spending becomes another personï¿½s (or firmï¿½s) income. If savings keeps leaking out and is not accompanied by an increase in spending elsewhere, then the economy starts shrinking. Since we want the private sector to run a surplus (spending less than income), then the public sector must run a deficit even for a stable economy, let alone one that is growing.
You touch on something that has long been a puzzle for me. In the popular press discussions of economics, it is always considered a good thing for a person's savings to increase year over year, for a business to make an annual profit, and for a government to run an annual surplus on average. It is considered a bad thing to have inflation. However, if every sector of the economy has more money at the end of the year than at the beginning, and inflation has been held in check, where did all the extra money come from? Why is it considered good for governments to run surpluses rather than deficits?
Also, your insight that money is debt is also correct. As you highlight, anyone can emit money ï¿½ the trouble is in getting your money accepted by others. That is why, in general, money emission falls to government, which can create the demand for its money by requiring it as the only thing that will satisfy the governmentï¿½s imposed obligation of paying taxes. It is this obligation that gives money its value, not anything backing it. It is an obligation that is imposed by the Sovereign.
If you have read the rest of my "PCT View of Money" you will know that I disagree with the last part of that paragraph -- or at least I think it's overspecialized if not contradictory to my argument. Could you offer reasons why I am wrong, or why my proposals and the above are actually consistent with each other?
I have a quite different reason (not in the Web document but in the part of my chapter for LCS IV that is based on the Web document) why Government money is often but not always preferred to private money. In my chapter I have a picture of UK banknotes issued by eight different banks, only one of which is Government backed (Bank of England), but all of which are accepted as being of equal value, pound for pound, where they are accepted at all (Scottish note are not usually accepted far from the Scottish border, for example).
In the chapter, I have this short passage in a long discussion of the gradual creation of private money, just before the pictures of the seven kinds of private banknotes and a fleeting discussion of the need to reduce uncertainty by regulating private money exchange rates:
On 2015/07/18 2:01 PM, Franklin Lenk wrote:
"To allow any single private bank a monopoly on the provision of generic IOUs ï¿½ which we can now call tokens of ï¿½moneyï¿½ ï¿½ is to unfairly enrich that bank. So if the decision is to have only one source of money tokens, the issuer should be a collectively controlled institution. Typically, such an issuer is a national treasury."
By the way, to offer my suggested answer to the question I posed to Rick in
[Martin Taylor 2015.07.15.17.45]
[From Rick Marken (2015.07.15.1335)]
RM: I think what economics needs is a better model of how an economy works. And having a better model starts (as it does in psychology) with having the correct understanding of the phenomenon to be explained.
Do you have any description of the phenomenon to be explained might be in economics?
If we take "control" or "the control loop" to be the phenomenon to be explained in individual psychology, I would say that "the trade protocol" is the basic phenomenon in economics. (See [Martin Taylor 2014.11.26.16.45] for a brief introduction to the concept of a protocol). Any other answers would be interesting to contemplate.