MONEY, MACROECONOMICS AND KEYNES phần 3 potx

wealth by their loans. To maintain this conviction, the State targets some rate

of growth of the banks’ own net wealth, which explains the origin of banks’

rather unchecked power to determine the effective rate of interest and the rate of

mark-up firms have to attain (Parguez 1996, 2000a). At the onset, banks and State

are intertwined. The power of banks is always a power bestowed on them by

the State. The State therefore must impose financial constraints if it wants to

maintain the value of money.

Since the State allows the banks’ debts to become money, it has the power to

create money at will for its own account to undertake its desired outlays. The

endorsement of bank debt means that it is convertible into State money. In the

modern economy, State creates money through the relationship between its bank￾ing department, the central bank, and its spending department, the treasury. State

money is created as deposits or debts are issued on itself by the central bank. State

money obviously has the same value than bank deposits because of the financial

constraints banks imposed on borrowers and therefore on employment, which

includes the rate of interest and the rate of mark-up. The power of banks to issue

debts on themselves is the outcome of evolution of debtor–creditor relationship

(Innes 1913). As soon as a society escapes from the despotic command stage, pro￾duction is sustained by a set of debt relationships. Debts of the credit-worthiest

units begin to be accepted as means of settling debts resulting from acquisitions.

Soon there are units, which are so credit worthy that their debts are universally

accepted as means of acquisition, at least within a given space. When they spe￾cialize into the issue of debts on themselves, it is tantamount to deem them banks.

There is now a new major question: how could modern banks evolve out of a

complex debt structure, which is Victoria Chick’s ‘mystery’? Answering this

question is to explain how the banks’ own debts can be homogeneous by being

denominated in the ‘right’ units, in which real wealth is accounted. There are only

two alternatives: the first is the solution of Menger (1892), according to whom

the banks’ existence would spontaneously evolve out of a pure market process

without any State intervention; the second is to explain the banks’ existence by

the State intervention (Parguez and Seccareccia 2000).

The Mengerian alternative is irrelevant because it is tantamount to some

Walrasian tâtonnement. The second alternative imposes that money cannot

exist without the support of the State as the sole source of legitimacy. It is the

State which bestows on the banks’ debts the nature of money by allowing

banks to denominate in the legal universal unit, in which its own money is denom￾inated. State money is universally accepted by sellers to the State and firms

because they are certain of the ability of the State to increase real wealth by its

expenditures.

Ultimately, all money can be deemed both ‘State money’ and ‘symbolic

money’. It is ‘State money’ either directly or indirectly because banks create

money by delegation of the State. It is ‘symbolic money’ because for all tempo￾rary holders it is the symbol of the access to the real wealth generated by initial

expenditures financed by the creation of money.

THEORY OF MONETARY CIRCUIT

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3. Money is ephemeral but it is not insignificant

The creation of money is the outcome of two debt relationships:

R1: between banks and State on one side, and future debtors on the other side;

R2: between money recipients (acquisitors) and sellers.

Money is injected into the economy by R2 to allow the payment of the future debt

entailed by R1 when it will be due. Money is only created or exists to allow

debtors to pay their debts in the future. The payment of this debt therefore entails

the destruction of money, which proves that money is created because it will be

destroyed. The future debt is due when it can be paid out of proceeds or income

generated by initial expenditures undertaken through R2. In the case of firms, the

future debt is due when the sale of output has generated the receipts, which are

the proof of the effective creation of wealth initiated by the creation of money.

Assuming that proceeds are equal to the payable debt, all the money recouped by

firms is destroyed. In the case of the State, the future debt is due when the private

sector, or rather households as the ultimate bearers of the tax debt, has earned

its gross income out of initial money creation for both State and firms. Tax pay￾ments entail an equal destruction of money, which explains why the State cannot

accumulate money in the form of a surplus (Parguez 2000b).

Money exists only in the interval between initial expenditures and payment of

the future debt, which is their counterpart. Money cannot therefore be logically

accumulated. Contrary to the core assumptions of both neoclassical and Keynesian

economics, there cannot be a demand-for-money function because money cannot

be a reserve of wealth. Let us assume that some private sector units want to accu￾mulate money over time to enjoy a liquid reserve of wealth. Money created

through R1/R2 only has a purchasing power on the real output generated by outlays

resulting from R2. As soon as production has been realized, money has lost its

value, it has no more use and must be destroyed. Hoarded money does not have

a value. If hoarders decide to spend it, hoarded money would crowd out newly

created money, and the outcome would be inflation leading to a rise in the rate of

mark-up above its targeted level. The so-called ‘reserve of value’ characteristic

contradicts the nature of money. It could only refer to some imaginary ‘commod￾ity money’.

A desire for accumulating money is the mark of an anomaly that could jeop￾ardize the stability of the economy. In any period, an increase in the desired stock

of hoarded money reflects a share of ex post saving which is itself a share of

income accruing to the private sector; it is just, according to the very accurate

definition of Lavoie (1992), a ‘residual of a residual’ that ought to be nil.

The existence of desired hoarding leads to two alternative models: either there

is no compensation and an unforeseen debt to banks is forced on firms, or the

thirst for hoarding is quenched by the increase in the stock of State money pro￾vided by the State deficit. Therefore, I can spell out the rigorous proof of a propo￾sition of the neo-Chartalist school (Wray 1998): the minimum deficit the State

A. PARGUEZ

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