Some comments on their theoretical differences here.
I think Mike Sproul and David Glasner would agree on 95% of monetary economic propositions, only disagreeing on how fiat money gets its value. David thinks there are two reasons for fiat money to have value: either people are irrational, or fiat money provides a real service - discharging of taxes. The latter is a chartal description of money. Mike has a "backing theory" of fiat money, which I think is broad enough to include the tax-discharge argument. I like Mike's because it is a more general theory. But I don't think the two are very far apart.
To tell them apart, ask this question. "If the US government ceased accepting Federal Reserve-issued liabilities to settle taxes and, say, required gold instead, would the US dollar lose its value?"
I think David and most chartalists would have to say yes. Without the ability to redeem it for taxes owed, the US dollar would be worthless. I think Mike would say no, because as liabilities of the Fed, even fiat money has some sort of claim on Fed assets, and this is enough to give it value.
JP: You're right about my position. Now let's hope that David lets us know his position. Of the people that I most enjoy arguing with, (mainly David, Nick Rowe and Scott Sumner) David's position definitely seems closest to my own. I think that's mostly a result of his deep understanding of the Law of Reflux.
ReplyDeleteHi Mike, good to hear that I have managed to understand your arguments.
ReplyDeleteDavid once mentioned that you both attended UCLA. If so, that might explain your similarities?
I too am looking forward to hearing more from David on fiat money. I'm sure he'll have a post on it one of these days that we can chime in on.
Hi JP:
ReplyDeleteNow that I think about it, I'd say that if paper dollars were no longer accepted for taxes, then the dollar would hold its value as long as some other channel of reflux remained open. So if the government sometimes sold used desks in exchange for paper dollars, then that open channel of reflux might be enough to maintain the value of the dollar. A chartalist (and maybe David) would reply that those desks created a demand for paper dollars and thereby gave them value. So we're back to me saying that backing matters and them saying that money demand matters, and it becomes hard to think of a question that would distinguish our views. But I'd say in defense of the backing view that the same 'demand' arguments could be used to claim that shares of GM stock have value because there is a demand for GM stock. Since that's clearly inferior to the view that GM stock has value because of GM's assets, I think that by extension we could say that the demand view is also an inferior explanation of the value of money.
I didn't know David when I was at UCLA. I started grad school in 1978. We must have had a lot of the same professors (Alchian, Demstez, Hirshleifer, Thompson, Darby, Leijonhufvud), but the only monetary theory I ever heard from any of them was the quantity theory. There was never any mention of the backing theory, although Thompsom once mentioned the Law of Reflux.
Mike, here is the reformulated question:
ReplyDelete"If the US government ceased accepting Federal Reserve-issued liabilities to settle taxes and, say, required gold instead, and the Federal Reserve also did no sell used desks (or any other object or service) for Federal Reserve liabilities, would the US dollar lose its value?"
JP:
DeleteIf there were no channels for dollars to ever reflux to the issuer, then that is equivalent to removing all backing, so the dollar will lose all value. Keep in mind that I said no channels, ever---meaning that even if the Fed is liquidated in 200 years, dollars won't be redeemed for anything even then.