MMT – THEORY OF EXCHANGE RATE

by

Ivan Invernizzi

Rete MMT Italia – MMT France

20 juin 2021


This paper was presented at the 2nd International MMT Conference (here) in 2018 in New York and was the subject of an interview by RealProgressive (here).


ABSTRACT

MMT’s cornerstone concept, the currency as public monopoly, lead to an understanding of the market as a generalized system of currency exchange that just collaterally happens to appear phenomenically as a generalized system of goods and services. In this perspective, the market is not about buying and selling commodities and labor but, about buying and selling a specific currency empirically priced in terms of goods or labor. Currency’s price or, less ambiguously, currency’s term of exchange is structurally determined by the monopolist at currency’s primary supply – public spending. Therefore, as a result of a system specific feature the currency’s term of exchange will have a more or less important divergence from its structural level as the force of taxation causes it to flow down into the private sector, before being actually sucked up from it and destroyed by the monopolist with taxation itself.

Currency’s term of exchange determination expresses itself also in terms of foreign exchange rate, a priori from trade imbalance, economic dependence or the country’s economic size.

This paper will provide a pure MMT explanation of exchange rate determination that demarcates itself from any other approach.

INTRODUCTION

For a matter of logical fallacies not every framework that explains the empiric can be considered as valid, otherwise we could have a potential infinite number of truths which is too open to have any claim of scientificity.

A paradigm, in the extent that this happens to be actually possible, should be selected because of the excess empirical content over its predecessor and its ability of predicting novel hitherto unexpected consistent a priori with its hardcore, not continuously providing a posteriori ad-hoc adjustment1.

Theories of exchange rate, both orthodox and heterodox, are far from being able to understand exchange rate dynamics since, at least from the author’s perspective, they completely fail to recognize the currency as a monopoly. This lack of understanding has been emphasized by, apart from other things, the partial or complete inability in both explaining and forecasting the following :

  • a persistent deflation combined with currency depreciation in Japan in a near full employment regime and “expansive” monetary policy,
  • a sudden depreciation of the US dollar compared to the Euro in 2015, the continuous deflation associated with QE.

The whole point of this paper is to explain how, being a monopoly, the currency value, or as we will call it the currency’s term of Exchange, is set a priori from any monetary aggregate. In other terms the currency’s term of Exchange is the premises not the result of monetary flow and stock. It goes without saying that this reality also affects the term of exchange of the currency in term of other currencies.

The following is a very challenging paper from epistemic, theoretic and linguistic points of view due to the paradigm shift it proposes. A paradigm shift based on Warren Mosler’s contribution comparable to the one promoted in biology by Charles Darwin.

Mosler’s approach

The Moslerian paradigm is based on a central theme: the monopolist of the currency.

By ‘monopolist’ Mosler  means a single supplier of currency, by which he means net financial assets. More specifically, net financial assets are defined as the amount of assets in the private sector2 not backed by private liabilities in a given denomination (eg: dollars or euros).

From this point of view currency is not primarily a means of exchange, it doesn’t emerge from the “circulation dimension”, but it is the outcome of a coercive social organization: The State. Currency is a tool designed to provide the State (what it can more broadly be understood as the central political authority) with real resources3.

More specifically seller of commodity for a state’s currency are created by imposing a given population to pay a tax payable only in funds designated acceptable by the State.

The ability to impose tax is the necessary and sufficient condition for a State to be able to provide itself of commodity by spending its currency.

So, currency just collaterally becomes a means of exchange within the private sector. It necessarily becomes so when the state imposes it onto a larger population than the one provided with a direct access to its primary supply4 -the public spending- and in so doing it imposes onto a part of the private sector to provide itself with currency from other private agents. The one just described is the necessary premise of the general system of exchange-arbitrage of currency commonly called Market (Tcherneva 2016) and that later will be called ‘the currency’s filter’. This is why the market is an epiphenomenon of the state and its outcome a consequence of its political-institutional set up.

The currency’s monopolist doesn’t have just the exclusive control of the currency supply (as defined)5 but also the control of the currency demand through taxation. That means that it has always the power to increase or decrease the need for currency in the private sector and potentially, depending on the institutional set up of the state, also the ability of precisely determining its level.

M1, M2, M3 and any common monetary aggregates just measure some more or less restrictive assets, but do not reflect variable compatible with the concept of currency monopolist. They never match with the net financial assets outstanding in the private sector. Net financial assets in the private sector consist of the private assets not backed by private liabilities6.

Here Mosler explains how the monetary based should be defined. In other words, the amount of currency in circulation in according to MMT framework.

“That is, with today’s floating fx, I define base money as currency in circulation + $ balances in Fed accounts. And $ balances in Fed accounts include both member bank ‘reserve accounts’ and ‘securities accounts’ (tsy secs). And to me, it’s also not wrong to include any other govt guaranteed debt as well, including agency paper, etc.

That is, with floating fx, ‘base money’ can logically be defined as the total net financial assets of the non govt sectors (Note, for example, that this means QE does not alter base money as thus defined, which further fits the observation that QE in today’s context is nothing more than a tax that removes interest income from the economy.) And deficit reduction is the reduction in the addition of base money to the economy, with the predictable slowing effects as observed.

The point of this post is to ‘reframe’ govt deficit spending away from ‘going into debt’ as it would be with fixed fx, to ‘adding to base money’ as is the case with floating fx where net govt spending increase the economy’s holdings of govt liabilities, aka ‘tax credits’.”

The following is not much more than the simple application of Mosler’s model to understand currencies to the specific aspect of term of exchange and exchange rate determination.

In this Moslerian framework we could define as structural currency’s term of exchange the one that is a directly outcome of the state monopolist decision (emerging from the combination of component from #1 to #6) and as gravitation around it the effect of the remaining component that are nothing more that space of agencies provided by the system to the private sector. So the model of the determination of currency’s term of exchange level is composed of the following component that we can imagine as to be overlaid one on the other with the latter imposing its effect on the result of the former.

# 1 The primary supply of currency: marginal term of Exchange imposed by the monopolist to the currency (MTE) at its source.

The marginal term of Exchange imposed by the monopolist to the currency is its decision on what the private sector must do or provide in real term, to the state, at the primary currency’s supply (the public spending) to obtain the next unit of currency. MTE must be conceptualized in terms of abstract labor7. MTE is the nominal value that the currency provides to commodities, material or immaterial8, with their monetization (turns into money) by the public spending while buying them and, as is the other side of the coin, the real value that the state provides to currency while spending it.

Note that MTE is not a matter of quantity. The quantity of currency9 is not the cause but partially a consequence, as I will explain later, of MTE. Being a monopoly currency is immediately created at its source with a term of Exchange determined by its supplier. The monopolist always directly determines how much will be needed to get the next unit of Currency and therefore we can say that it is the currency that is by the state priced in commodity at the currency’s primary supply and it is not the private sector the one who’s pricing the currency by arbitrarily pricing the commodity term of currency given a stock of preexisting value less circulating currency.

As explained in “Money, Power and monetary regimes” (Tcherneva 2016) currency has an exogenous socially constructed meter of value measurement is the logical precondition for what we call “market”. The currency system and the consequent currency’s value is neither a logical nor an historical market consequence but a market foundation.

Here you have the essence of the determination of the currency’s term of exchange that is structurally and logically a priory of the currency’s supplied quantity and that is reflected also in the specific case of the currency’s marginal term of exchange for other currencies. Which would be explained later.10

The actual currency’s quantity supply and stock is a consequence of 2 things :

  • The need to pay tax and the desire of saving of the private sector (both resident and not resident), giving amount and organization of tax burden (currency’s resuking structure) at the Marginal Term of Exchange determined by the monopolist over time. In other words the willingness of private sector to sell commodity to obtain currency.
  • The willingness of the state to supply the private sector of currency through public spending.

If the state continues to spend the same money for the same things – there would never be nominal effect, but just a shift in the level of necessary social labor embodied in the currency in case of a technological change. In case of technological progress there would be either an increase in the real wage per hour, or in profit. Note that despite all this, theoretically it is possible for the state to create austerity, increasing the price it spends, and also the tax it requires, compressing the deficit it runs. It is therefore possible to create deflation with full employment and inflation with massive unemployment.

#2 Monetary policies

The role of the monetary policy in Mosler’s approach can’t be farther from both mainstream and post Keynesian approach. The line of reasoning, concerning the monetary policies, begins from the so- called academic definition of inflation, which is defined as a continuous increase in the price level, and from the fact that pricing includes a specified delivery date. The next step of the reasoning consists of defining the term structure of prices as the matrix of prices that includes prices for the future delivery dates, which are called forward prices.

For nonperishable items the term structure of prices is a function of the price for immediate delivery plus storage costs. Storage costs include a cost of funds and are thereby a function of rates (where by “cost of funds” we mean both – costs of financing in case of a loan, and of opportunity costs in case of self-financing)

● Forward prices of perishables are a function of forward prices of the components of supply (forward cost of input) and forward demand and, therefore, a function of structure of rate, since forward costs of inputs and forward demand are a function of the term structure of rates.

● Therefore, the term structure of policy rates is seen as a structural continuous decrease in the MTE. In other words the inflation rate as academically defined.

#3 The restriction on primary currency supply

The restriction on the possibility to get income directly from the state expenditure allows an increase of the term of Exchange of the currency when it filters down to the private sector before being sucked up by the State with taxation. The narrower the bottleneck in the primary currency’s access the more the MTE can increase when the currency is traded -both for material-immaterial commodity as for other currencies- within the private sector.

Is it so because if the primary supply is not universally available the access to the currency to the part of private sector not directly provided by public spending is conditioned by the previous supply to who has this privilege.

The more passages the currency needs to do before getting to someone the more the MTE can rise until the extreme case of who’s not able to get the currency at any MTE, the involuntary unemployed.

Indeed for anyone who is involuntary unemployed the currency’s term of exchange is infinite since they are not able to buy it at any price.

#4 The currency’s filter

Once the currency is in the private sector how many passages is it obliged to do to arrive to a specific subject? The answer is different for different subjects and off course it keeps evolving over time. The important point is that unless the state provides an universal direct access to currency it is the stratification of different degrees of privilege in the access to currency that define how many passages the currency needs to do before getting to a subject.

The more the passages the more, from a financial standpoint, the MTE is likely to strictly increase because the access to the currency is constrained by the ability and willingness of a set, a chain, of private subjects that link the monopolist to the subject in question.

We will call this stratification in the currency’s access ‘The currency’s filter’.

To give a clear example of such a dynamic, imagine a large public procurement to build a big military base, the corporation A that wins such a public procurement will to some extent subcontract out and pay some of the work to another 3 firms (called B, C, D). These firms will, in turn,subcontract out and pay some of their work to a further 9 firms (called E, F ,G ,H ,I)and of course each firm will pay its workers. Is not hard to understand why the salaries of the workers of the firm that gets directly the payment from the monopolist are likely to be higher, or at least they could be potentially higher, than one of the 9 subcontracting firms.The ability to pay of A is different, ceteris paribus, to one of the 9 subcontractors since the access to currency to them is conditioned by the access of currency to A and, in turn, to B, C or D. So a specific currency system can be seen as a large set of long chain links like the one just mentioned. Such a way of framing the understanding of the market could be extended to include the number of potential, not just effective, channels at disposal for currency. But seeing the aims of this article is just to provide a qualitative illustration of a new paradigm without formalizing it all at once in a nonverbal language, I will not go further on such an aspect since it doesn’t qualitatively alter the point.

All what has been presented above is not the end of the story because, first of all the currency’s filter needs to be complemented by the taxation structure to have an overall picture of the financial side of the system. On the other hand, the financial side of the system must be complemented by the real side of the economy.

#5 The currency’s aspiration-destructing structure (tax)

The way the tax burden is distributed within a society affects the need to obtain currency, and therefore the currency’s term of exchange inside the private sector. Where the taxation burden is higher a priori of production, other things being equal, the currency’s term of exchange would have the tendency to increase11. For sure how taxes are distributed within the private sector can influence the relative value of commodities, but the way this happens should change if the taxation is proportional to the amount of production (VAT) or if it is independent from production. A territory, in our model we should say a portion of the “currency’s filter”, which is way more severely taxed -independently from production- than another territory, should face greater need for currencies which other things being equal, without an infinitely elastic direct supply for currency at constant MTE would lead to a local increase in MTE. This really component of the system is in any case ambiguous because the effect can be ambiguous on commodity prices.

# 6 The credit discipline in terms of collateralization.

To accept private liabilities for the payment of taxes is a way of letting private agents borrow to pay taxes which can now be done. In this case government establishes collateral requirements for bank lending of deposits that can be used to pay taxes. Not at all practical. No way to monitor or enforce but that’s a part of the MTE determination story since the MTE of the tax credit generated in such a way, if the private debt is not repaid, is the collateral supplied.

#7 Private debt and gravitation of term of exchange.

Since the currency is a monopoly the terms of Exchange can’t be determined independently of the monopolist and just can’t be seen as a process that emerges from the endogenous dynamics. Credit is a way of moving net financial assets, not of creating them. The one who receives it, doesn’t increase his financial position, but just finds a way to decrease it through the payment which is made thanks to the credit. Any spending is necessarily about moving the net financial assets and its premises is the willingness of an economic subject to decrease its net position. The credit is just a means of doing so and is something that can’t emerge a priori of the willingness mentioned above. Credit doesn’t supply what the monopolist supplies.

Of course, a private owner of net financial assets can always choose to sell his assets at less (in terms of MTE) than what is sold by the monopolist creating a temporal and local, as long in time as his ability to sell domestic currency, decrease in the MTE of a currency in relation to another. Such a situation is likely to happen when there is credit expansion. By connecting credit to the currency’s filter it could be said that credit can temporarily increase, or decrease, in function of its tendencies to expand or contract, the constraints imposed by the currency’s filter. Since those expansion-contraction doesn’t happen in all the filter in the same extension-speed this can create temporal-local pressure on relative prices. We can therefore see credit as a phenomenon that creates more or less local and temporal gravitation around the MTE. Obviously, this creates a movement of the “orbit” of the general level of prices around the MTE.

For example, a big credit expansion in housing is likely to alter the housing price affecting the general level of prices even if the MTE stays fixed at its source, the currency filter currency’s aspiration structure and the technology in the real competition not changed.

#8 Real economics components

Since we take the currency’s term of exchange as a meter of measurement of the amount of abstract labor by purchasable12by currency, everything that alters the relation between relative price and relative abstract labor content will have an impact on how MTE is translated-deformed in the price of goods.

This paper aims to define how the value of the currency is determined. This is strictly connected to, although not one and the same thing, the determination of price level. The system does condition price determination but off course it also provides a degree of freedom for private agents.

In fact real competition, as will be briefly illustrated later, does condition the actual distribution of prices in the various sectors determining, in term of abstract labor, the axis around which the distribution is developed and by influencing its skewness as well.

As the context of real competition shifts its output can also shift, that’s why, in the end, there is the need to include a real shock into the picture.

Real competition landscape.

As described by Shaik (Shaik 2017) in his real competition framework, prices are not constrained by the so-to-say quantitative theory of competition, where the markup, the degree of freedom for a firm (or any producer) to set a price depends on the quantity of product in such a sector. Way more theoretically solid, and perhaps also empirically, is the idea that price is constrained by “regulating capital”, the cost that a new potential producer will face to produce at the margin13 which is not marginal cost but the average cost of a new complete productive implant.

The connection with our analysis is that the price of a commodity doesn’t depend on the labor embodied in a commodity but by, just as in the case of currency, on the labor that should be embodied in the production of the units at the margin. Also, if in the case of currency margin and marginal as the same meaning since currency’s supply is not constrained by any currency’s new implant production. Currency’s supply is always free and its MTE an arbitrary political decision.

As described by the real competition framework proposed by Shaik14

Real shocks

Real shocks, like a natural or infrastructural disaster (as the one of Fukushima), can temporarily alter the reproducibility of specific production in a way that altering relative value creates a movement of the “orbit” of the general level of prices around the MTE.

Note that the recognition of the currency as a monopoly and of the currency’s supply-demand structure solves the so called “transformation problem”: the problem of finding a general rule by which to transform the value of commodities (based on their socially necessary labor content, according to the labor theory of value) into the “competitive prices” of the marketplace.

Note as well that the framework discerns between MTE and the consequence price level and the level of employment. A redenomination of currency occurs when the state decreases the MTE, which means an increase of prices paid by the state for the same things. Certainly, strong budget restrictions (as primary surplus budget) are likely to force the state into decreasing the price it pays and in doing so increases MTE and determines deflation. On the other side a large fiscal space makes from State a multi governance perspective easier to decrease MTE. This said the framework explains also how MTE and quantity spent are not one and the same thing and logically imply that a State can satisfy the private net saving desire in the currency at a given MTE and taxation structure without altering the MTE. Full employment and MTE, and therefore price, stability a priory of real shock, and of shift in the pricing of monopoly15 irreplaceable in short run, is always technically achievable.

The determination of the exchange rate

The currency’s term of exchange in terms of other currencies is determined by how the specific combination of component illustrated makes it hard to obtain the next unit of currency for the one who owns foreign currency. Since also foreign currencies have MTE this means that the structural exchange rate is determined by the interaction of the 2 currency’s supply-demand structure. Again, it is not about the quantity of currencies, but immediately about the term of exchange. “Hard“ in terms of equivalent abstract labor.   Everything that lowers the prices, creates, to the same extent doing so, a structural pressure for the appreciation of the currency.

QE and private sector leaded gravitation.

Let’s address now 2 of the anomalies, for mainstream or post keynesian approach, that have been presented right at the beginning of this paper.

Quantitative easing is an operation that removes net financial assets through time, taking away the assets that provide the private sector with net interest rate income, substituting them with the assets that, in case of a 0 rate policy and a positive yield curve don’t provide any interest net income. At the end of the day reducing net financial assets in the private sector is what austerity is and it would not be wrong to see QE as a pure austerity measure on the fiscal side.

For what concerns the depreciation of the euro is nothing more than a large gravitation due to the private sector. Any central bank of foreign currency is a private sector agent in terms of the local currency, since it can’t create it. Of course a private owner of net financial assets can always choose to sell his assets at the lower term of exchange than what is sold by the monopolist. This behavior creates a temporal depreciation of a currency in terms of another, as long as he is able to sell domestic currency.

Mosler’s approach provides tools to distinguish the structural move of the exchange rate from gravitation created by the private sector portfolio behavior. The contingent move is something that will accelerate the effect of the structural one as much as it retards it. Mosler explains it saying that it doesn’t matter if the fish on the hook decides to swim deeper in the ocean or to swim up, if you are reeling in the reel, the fish will eventually come to the surface. The deeper the fish swims under the water at the beginning – the faster it will be forced to come back up over time.

Fixed exchange rate

The case of fixed exchange rate is when the MTE is fixed in terms of the given amount of commodity or foreign currency. Such a set up consists of maintaining a buffer stock of the anchor used to continually manipulate the exchange rate in order to keep it fixed. Note as well that the state is not necessarily able to sustain the setting of two prices, as it is in the case in a bimetallic system, since if relative value between the two anchors changes, the state winds up buying a lot of one of the anchors and selling out its entire holdings of the other, therefore losing its ability to fix the term of exchange of the currencies in terms of this last one anchor.

Corruption and exchange rate

Note that the common form of corruption can just as well affect exchange rate when banks lend to “insiders” with no concern for repayment, who then sell the currency for a foreign currency which they keep hidden for themselves, as selling is likely to happen at a term of exchange inferior to the MTE in order to be able to reach the foreign currency. This a case where general price level increases come from currency exchange rate depreciation which is a supply side phenomenon. As it may be the case in a heavily import-dependent country like Venezuela.

Potential development of the Framework

By explaining how different positions within the currency’s system can lead to a different MTE of the currency, Mosler’s framework can be extended to inquire into distribution and industrial relation dynamics. More in particular, since variation of MTE of the currency leads to price variation within the private sector, and since a price paid is a necessary income that under capitalist modes of production is divided between profit and salary, it could be claimed that where the system provides a lower MTE there is more space for both profit and salary.

Therefore in this position there are the preconditions for a worker to obtain more from a financial standpoint, than in another position of the system where MTE is higher.

CONCLUSION

The erroneous notion that prices are determined by the quantity of circulating medium was based on the absurd hypothesis that currency doesn’t have a term of exchange when it enters into circulation.

The whole point of this paper is that the currency -being a monopoly- has an autonomous real term of exchange fixed by the monopolist in term of abstract labor.Therefore are not goods and services having an autonomous currency’s price expressing, as other side of the coin, in aggregate the currency real term of Exchange Is it so because market, what appear as a general exchange system of goods, is actually a coercive general system of exchange-arbitrage of currency that collaterally result in a system of exchange of goods between private agents.

Nominal price in term of a specific currency of a specific commodity are driven by the amount of abstract labor embodied in its production at the margin and this does translate in nominal value in function of the currency’s MTE.

Tax structure, credit dynamics, real competition dynamics, currency’s filter they all contribute to shape the orbit, the divergence, of goods prices from the MTE at the primary supply – the public spending- in the process of currency arbitrage-exchange happening in the private sector. This includes currency for commodity- including labor force- and currency for other currency.

The common discourse about Exchange rate goes on to suggest that imbalances in trade balance or in capital account are the drivers of the Exchange rate determination process.

Note that for a trade surplus/deficit to be understood as currency shortage/excess you should presuppose not just that quantity drives Exchange rate (or currency’s term of exchange in general) but also that net saving desire in domestic currency of 1 “foreign country”, all of them, is constant and at level 0. Any change in foreign net saving16 desire at a given Exchange rate level will express itself necessarily in an unbalance. All the Thirwalls and follower point of the foreign constraints disappear, or at least must be disconnected with trade imbalances.

Note also that the recognition of the currency as a monopoly, and all the consequent components of the system just illustrated, solve the so-called “transformation problem”, namely, the problem of finding a general rule by which to transform the “values” of commodities (based on a notion of abstract labor) into the “competitive prices” of the marketplace.

The understanding of foreign Exchange rate has heavy implication in the understanding of geopolitical and geoeconomical constraints and therefore in policy design and implementation. A different understanding of money leads to a different understanding of Exchange rate, of international balance of power and ultimately to the historical evolutionary phenomena called capitalist society.

That’s why Mosler’s paradigm is so scientifically meaningful.


Bibliography


Anwar Shaikh 2017 Capitalism: Competition, Conflict, Crises Economics

Pavlina R. Tcherneva 2016 Money, Power, and Monetary Regimes visiting professor at University of Bergamo, DAEMQ Department, Lectures of International Monetary

Warren Mosler “ A General Analytical Framework for the Analysis of Currencies and Other Commodities”

Warren Mosler “Exchange Rate Policy and Full Employment”

Warren Mosler “Full Employment AND Price Stability “

Warren Mosler “Maximizing Price Stability in a Monetary Economy. Warren Mosler “Soft Currency Economics”

Warren Mosler “The Natural Rate of Interest is Zero”

Warren Mosler MANDATORY READING MATERIAL for the 19th March 2014 Seminar of Warren Mosler,

Warren Mosler Seminar of 19th March 2014 in the course of International Monetary Economics at UniBg.


Notes

1 As explained by Imre Lakatos.

2 Defined as everything that is not treasury, treasury extension (local authorities in non federal states) or central bank.

3 The currency doesn’t have any value for its monopolist, just real resources do since currency is just an accounting record created ex nihilo by the monopolist much as the signature is created for an individual.

4 Of net financial assets.

5 The banking system can’t create the thing needed to pay taxes, such as credit balances in accounts at the CB. Only the CB can credit accounts on its books with the credits required for payment of taxes and more precisely, with three exceptions . Only the treasury, while spending through the CB can result in net financial assets. Forget about the wrong notion dominant in the post keynesian environment of the CB being obliged to accommodate a posteriori loans made a priory by private banking for the potential risk of a possible financial collapse. There not a priory loans from private bank are possible. If a bank lends money and the debtor pays with this credit the clearing of the payment by the central bank itself create any required reserve as a matter of accounting. Is not something that happens to accommodate anything.

6 The Fed does have monetary aggregates that include treasury secs which are called ‘S’ and ‘L’ but are rarely cited. Note that in this category you have also state bonds and spending that the central bank does in purchasing assets denominated in another currency since it represents a net spending in its own currency. The case in which the central bank buys private liabilities at a premium price is functionally a subsidy to the extent of the premium and is functionally equal to a public spending. Functionally also all the possible free indefinitely outstanding overdraft without presumption of repayment is a source of net financial assets. The latter situation is a relevant case in China where the central bank allows the public bank to maintain and increase overdrafts to allow public firms to maintain and to increase overdrafts for free. This case is functionally equivalent to public deficit spending but it is not accounted for as such because it doesn’t happen through the treasury.

7 Also, if Mosler never used this Marxian concept. For abstract labor i mean time of labor socially necessary at average intensity and prevailing technic.

8 Including labor force

9 State purchase without corresponding taxation correspond to the supply of net financial assets. That includes public spending ,central bank overdraft without implied repayment, purchase at premium prices of financial assets or purchase of foreign net currency quantity supplied in a year.

10 Note that the recognition of the currency as a monopoly and of the currency’s supply-demand structure solve the so call “transformation problem”. The problem of finding a general rule by which to transform the “value”; of commodities (based on their socially necessary labor content, according to his labor theory of value) into the “competitive prices” of the marketplace.

11 In Keynesian terms we could say that where the taxation is higher the demand is lower, and the price will tend to be lower.

12 Aka purchasable

13 Like oil in the 70s’ which is a marginal monopoly controlled by Saudi Arabia

14 Real competition framework of Shaik is compatible with Mosler monopolist of the currency’s framework. Not the same can be said to the understanding that Shaik provide of currency. Judging by its book Shaik is aware of the conclusion raised by MMT but not by Mosler’s line of reasoning and more specifically by the implication of seeing the currency as a public monopoly.

15 Like the case of increase in general price level due to increase of the price of oil, which is a marginal monopoli, in 70’s.

16 Saving defined as a flow of one year which is different from savings defined as a stock.

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