Paul Mason’s Guardian comment today http://www.theguardian.com/commentisfree/2015/feb/22/can-a-parallel-digital-currency-solve-the-greek-financial-crisis is mostly right. But given that it touches on the Nature of Money, I thought I'd pitch in.
Paul is right that the Eurozone crisis is a monetary crisis which, at its heart, is about what money might be. Along with the advent of quantitative easing, it was the Eurozone crisis that really initiated my interest in money, much to the chagrin of my interlocutors.
Paul reckons that Greece issuing a parallel currency that is deliverable to tax authorities in lieu of Euros would be interesting. I agree. It is in keeping with the Cartalist conception of what money is about https://www.community-exchange.org/docs/what%20is%20money.htm that I basically sign-up to. And he is right in saying that in choosing to accept these IOUs (if allowed to choose), citizens would be making a call on the ability of the state to function as a state at some future point in time. Whether this would mark the beginning of the end of the Greek state in its current form is another question. (The recent example from California would argue not http://money.cnn.com/2009/07/02/news/economy/California_IOUs/; the French Revolution perhaps more so http://www.amazon.co.uk/Stuff-Money-Time-French-Revolution/dp/0674047036/ref=sr_1_1?s=books&ie=UTF8&qid=1424691608&sr=1-1&keywords=rebecca+spang. Argentina maybe sits in between these extremes http://news.bbc.co.uk/1/hi/business/1501239.stm.)
Paul is also right in saying that a state is always solvent if it is a) a monetary sovereign and; b) has monopoly use of force in a territory. Introducing IOUs perhaps restores some monetary sovereignty. But the idea that a state, once it introduces an IOU parallel currency, can THEREFORE ALWAYS RUN A DEFICIT is wrong other than in a tautological sense (you can issue as many IOUs as you like), or - if adhering to the transversality condition - he means maybe just a small one when real trend growth is positive and real interest rates are low (in a basic debt dynamics model). Why? Because of, like, the existence of the rest of the world and stuff.
Fiscal expansion is great and all when you have hit the Zero Lower Bound and you realise that monetary and fiscal policy are perhaps not as separate as you used to imagine. It’s also pretty good when you can borrow at negative real rates to invest in projects that have even a chance of accruing positively to real GDP growth if there is a lot of slack in the economy (seen in high unemployment, which is a decent sign of economic malfunction). And it is especially good if you are not a monetary sovereign but sit in a fiscal and monetary union and your partners are giving you the means. But open-ended and permanent fiscal deficits are not a great ambition if you have a) ceded all monetary sovereignty; b) failed to join a fiscal union; c) wish to remain in a monetary union.
Finally, if Greece is kicked out or forced to leave Paul is right that this does raise questions over the permanence of Euro membership for all members, but this needs to be weighed against the value of enduring rules of membership (as Tony Yates put it https://longandvariable.wordpress.com/2015/02/18/on-the-binariness-of-the-euro-or-lack-of-it/). And the idea that Greek ejection would lead to a speculative attack on the Euro looks to be a) pure speculation at this time; b) perhaps not something that keeps Europe’s mercantilist finance ministers awake at night, at least while the spectre of deflation haunts the continent. I’m not talking Grexit down as some kind of desirable outcome, but am not sure that after the Cyprus template ... I mean episode ... it is maybe not seen as a less scary outcome by Eurozone finance ministers than Paul makes out.
Finally, I think it’s great that a journalist of Paul’s profile and thoughtfulness is representing the rolling Eurozone crisis as a nature of money crisis. Because he’s right – it is.
