W. Mosler eta M. Forstater (1998): A General Framework for the Analysis of Currencies and Commodities1
(i) A Note on Pricing
Estatua da monetaren jaulkitzaile bakarra2
Bankuak Estatuaren eta sektore pribatuaren artean tarteko gisa3.
Monetaren hasierako eskaria, zergak ordaintzeko beharra4
(ii) Utilizing the Model
Modeloa eta zirkuitu monetarioa5
Zirkuitu monetarioa eta osagai bertikala6
Kreditua (eragiketa horizontala)7
Billetea eta bankua tarteko moduan9
Banku gordailuak, maileguak eta eragiketa bertikalak10
Fondoak beti datoz Estatutik11
Enpresaria, produkzioa, mozkina, banku mailegua12…
Zergak, aktiboen zergak eta transakzioen zergak13
Keynes, John Maynard, 1936, The General Theory of Employment, Interest, and Money, New York: Harvest Harcourt Brace.
Lerner, Abba P., and David C. Colander, 1980, MAP: a market anti-inflation plan, New York: Harcourt Brace Jovanovich.
1 Ikus “A General Framework for the Analysis of Currencies and Commodities.” in P. Davidson and J. Kregel (eds.) Full Employment and Price Stability in a Global Economy. Cheltenham: Edward Elgar. http://www.mosler.org/docs/docs/general2.htm eta A General Analytical Framework for the Analysis of Currencies and Other Commodities.
2 Ingelesez: “The State is effectively the sole issuer of its currency. As Lerner and Colander put it, “if anything is a natural monopoly, the money supply is” (1980, p. 84). This means that the State is also the price setter for its currency when it issues and exchanges it for goods and services. It is also price setter of the interest (own) rate for its currency (Keynes, 1936, ch. 17) The latter is accomplished by managing the clearing balances and securities offered for sale. The corn farmer, however, is generally not the single supplier of corn, and therefore is not a price setter. In addition, as there is no central warehouse, or its equivalent, the “own rate” for corn is 0% or negative, reflecting only a cost of storage and a cost of short selling.”
3 Ingelesez: “The model allows for two primary paths in the vertical component of a currency. The first is described above (Ikus Dirua: transakzio bertikalak eta horizontalak (2)) , and the second exists because it will be assumed that the State allows bank deposits to be used for payment of taxes. Therefore banks are allowed to automatically function as intermediaries between the State and the private sector. This happens whenever a bank draft (check) is used for payment of taxes. The banking system is simultaneously obligated to accept funds from the State on terms dictated by the State to cover clearing balances debited when such checks clear.”
4 Ingelesez: “Initial demand for the currency- that which is necessary to pay taxes- originates with those with tax liabilities. When analyzing an economy, knowledge of the type of tax liabilities in force is fundamental to understanding its operation. For example, an asset tax, such as a property tax, will yield different results than a transaction tax, such as a sales tax, value added tax, or income tax.”
5 Ingelesez: “We now proceed with an example of how this model can be integrated into an analysis of the monetary circuit. In this example, we begin with the following assumptions:
1) The State has levied an equal head tax on all individuals.
2) The State hires only labor.
3) There is no net desire to save net financial assets (no deficit spending and no corresponding involuntary unemployment- …).
4) The State does not hire all the available labor (there is a private sector).
5) Producers qualify for bank credit.
6) Consumers have no access to credit.”
6 Ingelesez: “The monetary circuit begins with the vertical component, when the State describes that which it will accept for payment of taxes. The head tax is payable only in units of that currency. This causes taxpayers to offer goods and services in return for units of the currency. The State is now able to use its currency to purchase goods and services. This process results in the monetization of transactions in the State’s currency. Taxpayers are continuously offering goods and services for sale, and soon other private sector agents who desire that which is offered for sale, seek the means of obtaining units of the currency demanded by the sellers. The forces at work in the vertical component are sufficient to cause sellers of goods and services to denominate their offers in units of the State’s currency. There follows an exchange in the unit of account from the State to the private sector, and from the private sector to the State, as the State spends and the taxes are paid.”
7 Ingelesez: “Credit (horizontal activity) arises when a buyer desires to make a purchase by borrowing that which the seller demands. The buyer could borrow directly from the seller. This would result in the transfer of the items sold in exchange for a promissory note of the buyer, denominated in the State’s currency, accepted by the seller. This note can be considered a form of money, depending on one’s definition of money. The note presumably has value, or the seller would not have accepted it. But clearly any value is subject to change, as the buyer’s financial condition may vary. There is also no reason such a note could not be negotiable, and circulate in the economy, as each new holder of the note attempts to use it to purchase from other sellers. Reflux could occur either when the original issuer of the note obtains it back via a sale of goods or services, or when the original issuer of the note retires it by exchanging it for State currency.”
8 Ingelesez: “Notice that while the note was circulating, it was not an acceptable means of tax payment. The note was, however, an example of the leveraging of the State currency. It was endogenous horizontal activity. The holder of the note had a “long” position and the issuer a “short” position. The net was always 0. The note was, however, denominated in units of the State’s currency. Horizontal activity is always denominated in units of a vertical component.”
9 Ingelesez: “The same transaction could have been intermediated by a bank. Perhaps the seller did not want to accept the note of the buyer, but would accept a bank deposit. The buyer could then go to a bank and request a loan. If approved, the result would be that the bank would hold the buyer’s note, and grant the seller a deposit in the bank. Banking thus assumes the credit risk of the buyer (presumably expressed in the interest rate charged). Banks undertaking this type of business activity are similar to insurance institutions, managing risk through analysis and diversity. Again, this is horizontal activity.”
10 Ingelesez: “Bank deposits are the accounting records of loans. There is gross expansion of financial assets, but the net is always 0. For every deposit there is a loan from which it originated. Do note, however, that as bank deposits are acceptable for tax payment, they may function as part of the vertical component. Again, the banks acting in this capacity are, in the case of deposits being used for tax payment, intermediating vertical activity.”
11 Ingelesez: “Tax payers not wishing state employment, or who don’t qualify for State employment, will seek other, alternative means of obtaining currency. Directly or indirectly the needed funds must, given the above assumptions, ultimately come from someone employed by the State. In the simplest case, individuals offer goods and services to those employed by the state in return for some of the currency originally earned from the State.
Non taxpayers, too, are apt to become monetized, as when they see goods and services for sale they, too, desire units of the State currency of denomination. They may, for example, sell their labor to those employed by the State, and then, with the currency units thus obtained, make purchases from tax payers not employed by the State. “
12 Ingelesez: “At some point, an entrepreneur may arise and attempt to organize production, with the objective of making a profit, which can then be used to make personal purchases. This may begin by borrowing from a bank to pay the wage bill, and end with the recovery of expenditures and profit through sales of final output. The example of this paragraph is representative of existing circuit analysis. But now we can go further, as even the most complex of the interactions of firms, consumers, taxpayers, and the State are readily examined in the context of our model.”
13 Ingelesez: “This example assumed a head tax. It could have assumed a transaction tax, such as an income tax. Note, however, that an income tax on income earned by the private sector from State employment will not drive the model. Working for the State, one would simply get a net payment of currency units for which there would be no further use. What would be required is an imputed income tax on transactions within the private sector. These transactions–private sector employment–would then generate a net private sector tax liability that would require sales of goods and services to the State. Note that this would have to include an imputed tax, otherwise the private sector would (continue to) trade in some other medium of exchange.
It is also clear that transactions taxes have the effect of discouraging those transactions subject to the tax. Thus the model lends itself to the analysis of the differences between various asset taxes and transactions taxes.”