Quick Thoughts on Chartalism

Chances are that you’ve never heard of chartalism (unless you arrived here because you Googled the word). I’ve been reading an increasing number of articles which argue certain points which are central to the economic theory of chartalism. This theory is centrally focused on characteristics of a fiat currency regime. The basic assumptions and conclusions are sound although I have not studied it enough to have a fully informed opinion. Further, I disagree on principle with some conclusions on the surface level.So what is it all about? Basically, the chartalists suggest that the state issues fiat currency via government spending and recoups (destroys) the money via taxation. Thus, fiat issue is no more than printing money and, if the government did not do so, there would be no money for citizens. This extends to a conclusion that the private sector cannot save money unless the government runs a deficit. This is further shown by using simple algebra with the formula for GDP. This reinforces the argument of the adherents.I see a few basic flaws in this theory. First, if there were no fiat money, that would not destroy economic activity. There would be, at a minimum, barter activity. Second, it seems to ignore debt (or at least under-appreciate its role like most all schools of economic thought). Since private banks issue credit, the state is not the only entity which can issue currency (depending on one’s definition).Nonetheless, this is important. Governments can and do print money. The U.S. Dollar is essentially backed (primarily) by U.S. Treasuries. In other words, the value of the Dollar is derived by the use of it to pay government debt. The point remains that next time you find yourself in a debate about the nature of the state and deficit spending, one can not summarily dismiss the notion that deficits don’t matter or the suggestion that the U.S. will not default on its debt. There are shades of gray to this. Again, I don’t completely agree with all the assumptions or conclusions of this theory. But, well-informed (and sometimes even well-intentioned) adherents will make good points – specifically that this theory is sound due to its identity relationship from the GDP math.One of the main goals of Stop Taking Soma! is to educate and inform. Shouting matches between ideological opponents and semi-informed debate participants are a problem in the political environment. If libertarians (small “l” or big “L”) or other marginalized political (or economic) groups fail to understand the perspective of our opponents, we will risk continued marginalization and be reduced to nothing more to uninformed noisemakers.For more on chartalism and its post-Keynesian cousin circuitism, visit the forum on Steve Keen’s blog and read this thread. (Full disclosure: I have not yet read it.)

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