From: "Thomas H. Greco, Jr." To: "Joseph Huber" ; "Lub Sergio" ; "IJCCR" ; ; "Robertson James" Subject: Re: monetary role of central governments Date: Thursday, 4 September 2003 10:51 AM Dear Joseph, Yes, I'm happy, too, to have a message from you.Forgive the delay is answering, I've recently returned from a very exhausting trip to Europe and had limited access and time to deal with correspondence. more below.. ----- Original Message ----- From: "Joseph Huber" To: "Thomas H. Greco, Jr." ; "Lub Sergio" ; "IJCCR" ; ; "Robertson James" Sent: Sunday, August 17, 2003 3:20 AM Subject: Re: monetary role of central governments > Dear Tom, nice to hear from you again. > > Tax anticipation warrants. In theory, certainly consistent; in practice,just another mechanism of deficit accumulation? There can be no deficit accumulation without forced circulation. The market will refuse or discount any credit instrument (currency) in which confidence is lacking, IF IT IS ALLOWED TO. > Competing currencies, no legal tender, no forced circulation of any currency. In theory, as you and James know well, I disagree on grounds > of transaction costs, efficient allocation and overall domestic product and productivity; in practice, I would let you have your way - because I think the chartal theory of money is right according to experience and empirical facts rather than representing a scholarly dogma. The chartaltheory says that the currency which is preferred by the government of a fairly stable nation state will be the predominant currency in everyday economic life; without necessarily being enforced as legal tender. In the late 19th century, when the chartal theory of money was developed,central banks and their banknotes were still far from having the absolute status they have gained in the meantime. I argue that transaction costs under the present regime are EXTREMELY high because of the interest that must be paid on bank credit money,which enjoys a legally enforced privilege. Further, because of its artificial scarcity and misallocation, many trades that could be made are not. That makes the exchange system inefficient in its allocation of domestic product. I confess I am not familiar with the chartal theory. What does it mean to be "preferred by the government?" Does that mean forced circulation "for all debts public and private," or merely a willingness to accept it? I've never seen any convincing evidence to prove the point you make that "In the late 19th century, when the chartal theory of money was developed, central banks and their banknotes were still far from having the absolute status they have gained in the meantime." Do you have such evidence? > Alternative or complementary currencies, where occurring beyond small,closed communities, seem to be transitional phenomena during economic crises. In certain cases, crisis might seem to be permanent. That's why weak national economies tend by themselves to adopt some foreign currency which they think to be reliable. I agree that, in the long run, the field will narrow down to a few favored currencies, but the time is way past due for the field to be opened up to competition. Actually, currencies will eventually be made obsolete by the emergence of competitive clearing services funded by service fees rather than "interest" charged on negative balances. Yes, standards, will emerge. The development of the personal computer is instructive in this regard. In the early days there were dozens of brands, each with its own architecture and operating system. Eventually, the market settled on two, the IBM standard and the Mac standard. IBM was wise enough to open its architecture to others so that they could write compatible software and build their own compatible computers. IMHO, that's the way the exchange process will evolve. > James and I have an outstanding bet on the issue of competing currencies: whether the British government will approve the euro as a second currency for domestic circulation. For the time being, however, the British government shys away from taking any decision on the issue,including a referendum. The main issue is whether the British government will surrender its sovereignty to the European central bank by relinquising its power to issue its credit instruments into circulation. > I agree with you, then, that it is the role of government to declare a territory-wide, homogenous system of weights and measures, and that the official currency - as a standard monetary unit, not as a means of payment - is part of that. Good. I'm pleased to know we agree on that point. >But do you really think it reasonable to leave the issuance of means of payment in an official currency to private banks and local communities instead of having the seigniorage cashed in by the national government itself? Moreover, and perhaps even more important, if means of payment are created out of thin air, someone has to be in control, and be held publicly responsible for good monetary housekeeping. As Riegel argues throughout his writings, the people have an inherent right to issue their own obligations as payment media, and to accept as payment, whatever instruments they deem suitable. This can be done within a circle of willing participants exercising their right of association, just as in LETS. There is no reason why such clearing circles cannot be widened to include entire regions, nations, the world. Further, any entity that actively offers goods or services in the market has the capacity for issuing and redeeming currency. "Commercial paper" is a well-established means of financing for major companies. It must stand on its own merits. What makes it acceptable is the company's ability to deliver value to the market. Why not issue commercial paper in convenient denominations and allow it to pass from hand to hand as a payment medium? Why not make it redeemable, not in official money, but in it own stock in trade -- goods or services? Such currency may be issued to the extent of the "goods or service foundation" that is available. The market will punish excessive orimproper issuance by discounting it or refusing to accept it. It is in the issuer's own interests to avoid over-issuance, and to be transparent about its financial details, so that the market can properly evaluate it. As for private banks, what basis do they have for issuing any currency? They provide no goods to the market, and the accounting,clearing and risk-evaluation services they provide are way over-priced. They monetize the value of your collateral then claim the right to charge you interest. Insane. Banks, as we've known them, are on the way out. No, a means of payment cannot be "created out of thin air." What is generally lacking is a proper understanding of the nature of credit money, and the principles for its proper issuance, circulation, and redemption. I encourage all to read Riegel, especially Private Enterprise Money,and New Approach to Freedom -- all available through reinventingmoney.com. As for seigniorage, that's an outdated concept, applicable to commodity money like gold or silver brought to the mint for coining and certification. There's no need for such services with respect to freely issued credit money, unless you mean to impose the state as a gatekeeper between buyer and seller. Regards, Tom > Best wishes > Joseph > > ---- > Joseph Huber - Sybelstr. 37 - 10629 Berlin > Tel +49 - (0)30 - 323 12 16 Fax +49 - (0)30 - 327 656 34 > e-mail joseph.huber@t-online.de > web www.soziologie.uni-halle.de/huber >=========================================================================================== J.Z.: I find it interesting to observe a consensus on Free Banking & State Paper Money developing. Since this e-mail was too broken up, in short lines and had too many gaps, I converted it to text. J.Z., 29.11.03. ============================================================================================