Chartalism

Description

From the Wikipedia:

"Chartalism is a descriptive economic theory that details the procedures and consequences of using government-issued tokens as the unit of money. The name derives from the Latin charta, in the sense of a token or ticket. The modern theoretical body of work on chartalism is known as Modern Monetary Theory (MMT).

MMT aims to describe and analyze modern economies in which the national currency is fiat money, established and created exclusively by the government. In MMT, money enters circulation through government spending; Taxation is employed to establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation that can only be met using the government's currency. An ongoing tax obligation, in concert with private confidence and acceptance of the currency, maintains its value. Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government's deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government's activities per se.

The theory was developed by economist G.F. Knapp in the 1920s, with important contributions also by Alfred Mitchell-Innes. It was influential on the 1930 Treatise on Money of John Maynard Keynes, which approvingly cited Knapp and "Chartalism" in its opening pages. Chartalism experienced a revival under Abba P. Lerner,[6] and has a number of modern proponents, who are broadly denoted as post-Keynesian economists." (http://en.wikipedia.org/wiki/Chartalism)

Modern proponents

From the Wikipedia:

"Economists Warren Mosler, L. Randall Wray and Bill Mitchell are largely responsible for reviving the idea of Chartalism as an explanation of money creation; Wray refers to this revived formulation as Neo-Chartalism.

Bill Mitchell, from the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, Australia, refers to modern Chartalism as Modern Monetary Theory in the body of work he has developed in the field.

Scott Fullwiler, Ph.D., is Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College. Dr. Fullwiler has made significant contributions to MMT via his expertise in banking operations and the monetary system.

Rodger Malcolm Mitchell's book Free Money(1996) describes in layman's terms the essence of Chartalism.

Cullen Roche, a California based investment manager, published one of the most widely read pieces on MMT titled "Understanding The Modern Monetary System." Roche has become one of MMT's most vocal proponents and has engaged Paul Krugman in several debates on the subject of MMT.

Some contemporary proponents, such as Wray, situate Chartalism within Post-Keynesian economics, while Chartalism has been proposed as an alternative or complementary theory to monetary circuit theory, both being forms of endogenous money, i.e. money created within the economy, as by government deficit spending or bank lending, rather than from outside, as by gold.

In the complementary view, Chartalism explains the "vertical" (government-to-private and vice versa) interactions, while circuit theory is a model of the "horizontal" (private-to-private) interactions.

Hyman Minsky seems to favor a Chartalist approach to understanding money creation in his Stabilizing an Unstable Economy, while Basil Moore, in his book Horizontalists and Verticalists, delineates the differences between bank money and state money.

James K. Galbraith supports Chartalism and wrote the foreword for Mosler's book Seven Frauds in 2010." (http://en.wikipedia.org/wiki/Chartalism)