Reply To: A few questions


1. I don’t know of a work that discusses taxes in a regime a competing currencies. Here is Bob Murphy on Hayek’s scheme for competing currencies:

2. Changes in the purchasing power of money are determined by changes in both the money stock and demand to hold money. It’s a matter of judgment as to how much each factor contributed to a change in the purchasing power of money during some historical period. It’s never either or. Would MMTers blame the German hyperinflation of the 1920s or the Zimbabwe hyperinflation of the 2000s solely on changes from the goods side (which can only change the PPM by changing demand to hold money).

3. The interest rate is the inter-temporal price of money. The price paid when one trades present money for future money. Any person or institution that makes a credit contract with another person or institution will pay interest to borrow present money or receive interest to acquire future money. This is true regardless of the circumstances of the inter-temporal trade, e.g., for consumer loans, producer loans, government loans, direct investment in production, and so on. The interest rate is determined by the overall demand for and supply of present money for future money. The government is both a demander of credit and the source of supply of credit, through bank credit expansion. So, it’s participation influences the interest rate. Obviously, overall supply and demand conditions can be such that the interest rate is low even though government demand is high or conditions can be such that the interest rate high even though government demand is low.

4. The price of the inter-temporal trade of money cannot be zero because people have time preference. So Mike must be talking about something else besides the interest rate. For example, (one that he didn’t talk about) if the central bank lends money to commercial banks it can set the “interest rate” of its loans at zero. But this is not the price of inter-temporal trade of money, but a mere policy. The Fed could even pay banks to borrow funds,. but that would not be a negative interest rate.