JW Mason:
One of the things you hope students learn in a course like this is that money consists of three things: demand deposits (checking accounts and the like), currency and bank reserves. The first is a liability of private banks, the latter two are liabilities of the central bank. That money is always someone's liability -- a debt -- is often a hard thing for students to get their heads around, so one can end up teaching it a bit catechistically.
Nick Rowe:
...if the central bank money is not redeemable in anything, it's not really a liability...
Point Rowe.
6 comments:
Central Bank money is a tax credit, and is redeemable to pay taxes. That is the only thing it is redeemable for. Private bank money in the overall scheme of things is not redeemable for taxes, for it goes to pay back the loans issued by the bankers.
No, a tax credit is like a tax deduction, only better. A tax deduction reduces your taxable income, but a tax credit directly reduces the amount of tax you owe.
Yes *paying* your taxes also directly reduces the amount of tax you owe. But that is the only similarity, and there are many differences.
Anyway, tax credits are only found on tax forms.
But anyway, what is the advantage of looking at it your way?
Art,
Read articles 6, 7,8 of Randy Wray's "Modern Money Primer"
6. WHAT IS A SOVEREIGN CURRENCY?
7. WHAT BACKS UP CURRENCY, AND WHY WOULD ANYONE ACCEPT IT?
8. TAXES DRIVE MONEY
But the entire Primer is well worth the time spent on it.
I ask what you think, and you give me a link.
From my perspective, the government sets the value of the dollar when it purchases goods and services from the private sector using these tokens called dollars.
However the question of why I would accept these tokens in exchange of supplying goods and services to the government comes about, because I know that there is a demand for these tokens. The causal demand for these tokens comes about, because the government requires the use of these tokens to discharge the tax liability it imposes on the private sector, in differing degrees on different private sector entities. Once the society accepts that prices can be set using these tokens, this acceptance can become self perpetuating within limits.
I remember as a teenager, wanting a car and wanting a job so I could have money to spend. I do not remember wanting tokens so I could discharge my tax liability.
I have difficulty with your perspective because it does not seem natural, somehow.
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