My comments on blog Ralphonomics
“How Randall Wray should have attacked debt based money”
Ralph> Money is debt owed by a bank to a bank customer.
Well, no, money isn’t debt. Money can’t be debt because money is an —asset— while debt is a —liability—. Money and debt are two, opposite, sides of the same coin (pun intended).
The best phrasing I could come up with, is that money is “a token of indebtedness” (token e.g. in the form of coins and notes) or “a transferable acknowledgment of indebtedness” (in the form of credit in a current account or similarly liquid and transferable account). Money is an asset in the hands of the bearer or account holder, corresponding to a numerically equal liability owed by the issuer of the token or account to the bearer or holder.
Bank money (as credit in current accounts) is acknowledgment of indebtedness of the bank to the account holder.
Base money (as coins and notes) are tokens of indebtedness of the issuing central bank or treasury. Base money (as reserves held by commercial banks at the central bank) are acknowledgments of indebtedness of the central bank to the commercial bank. This perspective of base money as token/acknowledgement of indebtedness (i.e. IOU’s) corresponds to the idea that base money derives its value from its being accepted by the state as settlement of debts to the state (such as taxes). It’s even printed explicitly on all dollar notes: “This note is legal tender for all debts, public and private“.
This is consistent with the view of Alfred Mitchell-Innes in his 1913/1914 papers
In the first article, p. 14, he even writes explicitly: “Money, then, is credit and nothing but credit. A’s money is B’s debt to him, and when B pays his debt, A’s money disappears. This is the whole theory of money.”
Ralph> How Randall Wray should have attacked debt based money.
This must be a slip of the pen or a strawman, Randall Wray doesn’t attack “debt-based money” at all. Actually he does the exact opposite, he mocks and adamantly rejects the idea of “debt-free money” because (in his view and consistent with comments above) money without the underlying notion of indebtedness doesn’t make sense. See his series of posts on the subject.
So, in summary:
(1) Money is not debt (it’s the opposite, i.e. credit)
(2) There is no money without debt (not even base money, since it’s logically equivalent to IOUs).
Ralph> Re Wray’s argument, his basic point if I’ve got it right etc.
Okay, my understanding of Wray’s position and line of argumentation corresponds to your description in this last paragraph.
Ralph> … such money is a debt owed by a bank to someone with a credit balance in their account
Again, the whole confusion, with all people turning around in circles, saying and repeating the same things in opposite ways, and misconstruing each others arguments, arises from that misleading “money is debt” equation. No, money isn’t debt, it’s the reverse. From my perspective, my money in my bank account is my asset, it’s “plus” for me. From the perspective of the bank, there’s a corresponding debt in their books, a liability, in “minus” for them. Let’s stop equating money to debt. And also, let’s acknowledge that there can’t be money (for me) unless there’s a corresponding debt, with reverse sign (for the bank or some other entity). Evidently this applies to bank money, and I think everybody agrees on this.
Now what about base money, issued by “the sovereign” (central bank or treasury). There are two lines of thought.
(1) In the view of Mitchell-Innes, Randall Wray etc, base money can be understood and explained in logically the same way as bank money, with a liability on the sovereign. The sovereign acknowledges the liability by accepting the corresponding asset (the money) as settlement for debts of the bearer to the sovereign. Without such acknowledgment of liability, the money would lack its basis for value (that’s the basic Randall Wray “redemption” argument).
(2) Others (including you) claim that it’s different, for all sorts of reasons. Often they —want— it to be different in the hope of having debt-free money of some sort.
Well, both views have their merits. But let’s be clear…
Ralph> Add to that the fact the state can simply wipe out chunks of it’s so called debt whenever it wants via tax…
Whenever it wants? In any quantity it wants? These are unrealistic claims often heard in MMT circles, even though MMT-man #1 Randall Wray would not make such claims. In the real world, sovereigns —cannot— arbitrarily raise taxes, at will and as much as they please, because (1) populations may object and protest (democratically or violently), and (2) the maximum amount of collectible taxes is limited by the effect of the Laffer curve: beyond some tax rate, the collected amount doesn’t accrue but shrinks.
Ralph> For example £20 notes say that the Bank of England promises to “pay the bearer” £20
Pound notes are promissory notes, assets in the hand of the bearer, promises (i.e. liabilities, debts) for the issuer (BoE). Essentially same as any base money. The real value is the result of the pounds being accepted for settlement of taxes (it must be in the laws somewhere, though it’s not printed as such on the notes).
Re Donald’s promissory money: its value would be determined by (1) the perceived economic value of his promise, (2) the perceived likelihood that he actually honours his promise. My compatriot Bernard Lietaer has interesting things to say about such parallel privately-issued community monies (WIR, Torekes, Dora etc): https://www.youtube.com/watch?v=T9EI2PrDpmw