[OPE-L:1988] Re: [MIKE WILLIAMS] electronic money

Chai-on Lee (conlee@chonnam.chonnam.ac.kr)
Fri, 26 Apr 1996 22:39:04 -0700

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On Fri, 26 Apr 1996, Paul Cockshott wrote:
What I mean is that the state has, in the absence of a gold
standard, no obligation to redeem its money. In what sense
then is the money state debt?
Formally, the finance of state expenditure by the issue of
currency may be borrowing, but in practice, given the non
redeemable nature of the currency, it is a tax on holders
of existing money balances.

Duncan wrote in [1980]:
First of all, in an accounting sense. But the state also has to redeem
the money when it is offered in payment of someone's tax liability. I
think we need to be careful in distinguishing "redemption" in the sense
of accepting the currency to extinguish a debt, and "convertibility" in
the sense of guaranteeing the exchange of the currency for some other
asset (say, gold, or foreign exchange) at a fixed rate.


I disagree with Duncan because the tax payment in cash by the public is
not the redemption of a state debt but just another tax. If the state debt

is to be redeemed, the state has to give over some products in exchange
for the debt slip (the previously issued money). When we pay a tax in
cash, the state then purchases products from us with the money we paid
as the tax. We pay the tax twice. First, when the state issue the money
(we paid the tax in kind), Second, we pay another tax in money (then the
state collect the tax in kind or in labor with the money).

In conclusion, therefore, the tax payment in cash is no redemption. We of

course have to distinguish between "convertibility" and "redemption". But

they can differ only in the sense that one entails interests while the
does not. In this sense, Paul was also not so correct. The state money is
no debt slip, and the redemption is not imaginable. The state BOND or the
treasury bills are the proper debt slip. The redemption is made when the
treasury bills are exchanged for the paper money.

In short, both Paul and Duncan were not correct.

With regards,