[OPE-L:3422] Re: [PAUL C] Re: TSS and Value of Money

Duncan K. Fole (dkf2@columbia.edu)
Tue, 15 Oct 1996 09:41:12 -0700 (PDT)

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>At 12:20 11/10/96 -0700, Duncan K. Foley wrote [in #3360, JL]:
>> I doubt that there is any historical example of "fiat" money. What gives
>> modern state issued banknotes value is their role as part of the state
>> debt, backed not by gold reserves but by the state's power to raise tax
>> revenue. They are no more "worthless pieces of paper" than are the bonds
>> or stock certificates of profitable corporations.
>Is it not the existence of an obligation to pay taxes in Dollars that enforces
>the currency of the greenback, rather then their being backed by a power to tax
>in the sense of the tax raising power substituting for reserves.

I'm not sure I see any inconsistency in the two alternatives you describe.
My point is that currency issued by the state is technically a
tax-anticipation certificate. The fact that it has value arises from its
power to extinguish a tax debt to the state, just as the value of a bond
certificate or a stock certificate arises from its power to secure a stream
of revenue. In this sense state credit money has a "fundamental" value and
is not just a speculative bubble. I'd like to push the analogy further and
argue that the process by which the value of the state credit money is
determined is a speculative process analogous to that by which bond and
stock certificates are valued.


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu