[OPE-L:2025] Re: [MIKE WILLIAMS] electronic money

Chai-on Lee (conlee@chonnam.chonnam.ac.kr)
Mon, 29 Apr 1996 05:30:18 -0700

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>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.

I really don't understand the reasoning that leads you to this
conclusion. When we accept state currency, say, in payment for work
performed, we are not paying a tax, but lending value to the state, a
loan of which the currency is the certification. When we use the currency
to pay taxes, we are discharging a liability (just as if we used it to
pay a private loan off.) I don't see where there is any double taxation.

Chai-on (rejoinder):
Well. When we accept state currency (let us assume it to be $100) in
for the work we performed, we of course are not paying a tax on the
We can use the money, $100, to buy goods from other producers. So we did
not pay any tax on this occasion. And the other producer can use the same

money, $100, in turn, to purchase other goods from different producers and

so on. So, Duncan argued that we did not pay any tax when we received the
paper money from the state in payment for our work. But, nevertheless, if
we analyse this further, we can realize that our commodity producers have
collectively a tax upto the amount of $100 to the state. In return for the
of $100, however, the state paid nothing but a mere slip acknowledging that
owed you $100. Because we used the slip the moment we received it to buy
goods from other producers, the liability, as far as we are personally
concerned, was already dissolved. Noone paid a tax when we receive the
slip but because somebody must have paid a work upto the worth of $100 to
the state, we received the slip. So, I argue, we paid a tax indirectly and

collectively to the state, I argue.

> In conclusion, therefore, the tax payment in cash is no redemption. We
> course have to distinguish between "convertibility" and "redemption".
> they can differ only in the sense that one entails interests while the
> other
> does not. The state money is
> no debt slip, and a redemption for it is not imaginable. Instead, the
state BOND or the
> treasury bills are a proper debt slip. Their redemption is made when the

> treasury bills are exchanged for the paper money.

I can't really accept this analytical distinction between currency and
bonds. Both are liabilities of the state in the same sense. The zero
interest rate on currency exists because of the legal prohibition on
other financial intermediaries issuing small-denomination
interest-bearing notes.

Chai-on (rejoinder):
If currency and bond are both liabilities of the state, then the liability
be in a double account. The central bank issues the state money upto
the amount corresponding to the nominal units of bond. So, the debt
acknowledgement is seen on the face of bonds. In the exchange for the
bonds, the central banks issues the money. If both are equally a liability

of the state, then the amount of the state liability cannot but be

My argument in the above is very important in undrerstanding the nature of

the state money.