Re: Who Benefits from Seigniorage?


"Mike Marotta" <mercury@xxxxxxxxxxxxx> wrote in message
news:03415da9-d211-4ede-b9ea-2296a9191672@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
On Dec 28, 7:32 am, "Arizona Coin Collector" <nos...@xxxxxxxxxx>
wrote:
FROM:http://seekingalpha.com/article/112393-who-benefits-from-seigniorage

I trust that no one here was mislead by these falsehoods. There is
so
much wrong that it hard to know where to begin or how to address
each
of the many aspects of the individual errors.

Some examples of denominated ancient coins are known, the Roman
denarii with X are the best examples. Early Roman bronzes had three
or four dots show their fractions of 12. Little silver fractions
from
Kolophon with TH and TE are accepted to have been tetartemorion (1/4
obol). Those examples are all exceptions o the broad rule that for
about 2000 years from the invention of coinage until 1575, coins did
not carry a unit of account on them. They were always worth their
weight. Nothing more or less. The minter made money (seignorage)
by
giving back less in silver than he took in. You deliver a 12-ounce
pound of silver and you get back something less than 2880 silver
pennies. The reason you would do that is that your 2800 pennies
have
much greater utlity than three candelsticks, a broken chalice, and
two
strings of sleighbells.

So no ancient ruler ever debased his currency? That's certainly
"classic" seigniorage, just as modern base-metal coinage is another
variety of this form of seigniorage.

In 1575 for the year 1576, Henry III of France issued the 1/4 ecu
gold. That opened the gates to a flood of sins. Now the issuer could
declare any coin of any size or composition to have any value.

Within limits, ancient rulers could do that by replacing gold/silver
content with base metal, which had the same effect.

In 200
years, the British "pound" sterling was reduced to about 3-1/2
ounces. Once silver pennies, were reduced to big coppers, then to
small. (For the complete story with special attention to Spain from
the Muslims to the Hapsburgs, see Murray Rothbard's _What Has
Government Done to Our Money_.)

There is another side to the coin.

For one thing prosperity, trade, and industrialism increased the
value
of money as more goods and services were created, thus, it took less
money to buy more: copper could replace silver for beef and bread
and
beer -- as well buttons, beeswax and books.

True, but if the money supply is not increased commensurate with
production, it can become too valuable to use for ordinary trade of
goods and services. See next comment.

For another, there is a disutitlity to actually circulating precious
metals. Wearing them down makes coins worth less. The British
Royal
Mint of the 1690s and then the Bank of England of the 1820s ate tons
of losses, taking in old, worn coins and exchanging them by count
for
new. The best solution -- see Fractional Money by Neil Carothers --
is to have durable media, say in cupro-nickel, but backed 100% on
demand in precious metal.

What do you do when the market value of gold and silver gyrate wildly
as they occasionally (and lately) have done? Constantly shrink and
expand the circulating coinage? That's hardly practical, which is one
of the reasons why they were de-coupled in modern coinage.

However the government must spend at least
as much as it acquires from taxes and the sale
of securities. Otherwise it would drain the
monetary base and stifle the economy.

That is total nonsense. If there were less money in circulation,
each
piece would have greater value. So, if the govenment became a "sink"
for money, draining the supply would not stifle the economy but
would
be a true stimulus to savings and investment.

Not true for the major components of any economy, which require the
purchase of goods and services. Which requires money. When money is
scarce, it tends to be hoarded (either as investments or under the
mattress) rather than spent on goods and services. Having to resort
to payment in kind ("my pig for your blacksmithing services") is not
as easy or efficient as money payment. So a low money supply is a
drag on any economy; and having the government act as a "money sink"
lowers the supply.

Moreover, the difference between government and other activities is
that businesses create values that people want and pay for because
acquiring those values is a net gain in utility. Government
produces
nothing. It creates nothing.

Utter nonsense. It provides services that are demanded, voted for,
and paid for by voters. Most of these can be feasibly and/or
effectively and/or efficiently provided only by government. So in
that sense, government is "creating" something out of nothing for the
economy, just as any service provider does. It also produces some
goods, such as the money that, as previously noted, we all need for an
efficient economy.

What few enterrprises is has run at a dead loss,

Well, duh. In general it's pointless for government to make a profit;
and since except for user fees, government services do not generate
revenue, of course they're going to operate at a "dead loss" by
standard bookkeeping methods. And for the record, Fanny and Freddie
ran at nice profits back before they were cut loose to ruin themselves
through greed.

truly draining the economy.

A dollar spent by government contributes as much production to the
economy as one spent by the private sector. The money doesn't
disappear down a black hole. It's spent for goods and services
produced by itself and by private contractors to meet the government's
needs in the course of meeting our demands. True, it's forcibly
extracted from taxpayers after their democratically elected
representatives approve the expenditures and taxes, but those
taxpayers either would have paid elsewhere for the services that could
have been provided by private sector - priced to include the profit
margin that government doesn't collect (which helps offset any
inefficiencies) - or they would have to do without the services that
can only be feasibly and/or effectively and/or efficiently provided by
government.

The principal difference between public and private spending in the
economy is what the money is spent on, and even that is limited.
Without government and taxes, we'd still spend a fair chunk of our
suddenly free-up wealth to buy whatever services private industry can
provide in place of government. The rest gets spent on cars and TVs
and other personal interests. That's nice for retailers and our
consumer lifestyles but we would lose law enforcement, a judiciary,
national defense, much of the basic scientific research that doesn't
make sense for industry to fund, free K-12 education, and all the
other services that we wouldn't have without taxes and government.
With government, the money instead pays for all those services that we
say we want from government. So when we give the money to government
instead of spending it on ourselves, we do without a new car or TV but
we do benefit in countless more important areas.

The US Postal Service has been
something of an exception, being nonetheless still something of a
legal monopoly.

In a modern fiat money system, the Treasury has
no need for balances in excess of its near term
obligations. If its balances increase due to
seigniorage, it will have to be returned to the
private sector, either through reduced taxes or
increased spending. Thus the private sector is
the ultimate beneficiary.

How does the Treasury return its profits to the private sector? Do
we
all get something? In what proportion? The statement is nonsense.
Would we all not benefit more from a paydown of the Federal deficit
and public debt?

How about "not collecting the additional taxes that would be necessary
if they weren't offset by seigniorage"? That was pretty clear from
the article.

What about Federal Reserve notes that are bought
by foreign interests for use overseas? If the
notes never return, they represent a large gift
of seigniorage to the U.S. Again the beneficary
is the U.S. private sector as a whole.

If the chickens never come home to roost ... if the piper never
demands to be paid...
But the game cannot go on forever. Those dollars must come home --
and we should be glad that they do because the best possible use for
a
US Dollar is to buy something made in the USA. Dollars overseas
come
home to pay for exports. More of those would be good, too.

Notice, also that this "gift of seignorage" originally accruing to
the
Treasury and the FRB now comes to "the U.S.... the U.S. private
sector
as a whole." Is that by the magic of modern economics, or by the
legerdemain of glib writing?

How about "not collecting the additional taxes 'from the private
sector' that would be necessary if they weren't offset by
seigniorage"? That was pretty clear from the article.

Mike M.
Michael E. Marotta
"Austrian"


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