Debt-free money: A brief reply to Randall Wray

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L. Randall Wray is exercised by my suggestion that he has engaged in semantic sleight-of-hand. To summarise my argument: it is an obvious fact that a ten dollar bill is not a debt – because the issuer owes the holder nothing. In fact, we do not hold dollar bills in order to be repaid, we use them, primarily, to buy things.

Debts have a different function and source of value to physical cash. Debts are used to provide streams of cashflows to their holders, and their value resides in the debtors’ ability to meet payments. By contrast, money is used to pay for things, and its value resides in a network externality – it has value to me because it is accepted by others. And the more widely accepted the money is, the more valuable it becomes (a point completely ignored in Wray’s discussion of bitcoin, airmiles, etc.). Debts have nothing to do with network externalities, hence the properties, uses, and value of physical cash are completely different from those of debts. That is almost certainly one of the reasons why we have two different words: “money” and “debt”.

For some reason Randall Wray, like many others, is resistant to the uniqueness of money and wants all money to be a debt.

To make two different things seem equivalent one must give the same word two different meanings.

He correctly observes that debts carry an obligation to be repayed or redeemed. I don’t know why he thinks I disagree with this. Far from it – that is very close to the definition of debt or liability that I provide. The point is that a ten dollar bill carries no obligation to be repaid – in fact, it is not even meaningful to ask if you will be repaid for your ten dollar bill.

Now if the issuer of a ten dollar bill owes you nothing, how can Randall Wray imply otherwise? By changing the meaning of ‘debt’, ‘redeem’ and ‘repay’. A false equivalence is presenting two things as being the same when in fact they are different. One way to do this is to attribute two different meanings to the same word. That is precisely what he does. He changes the meaning of ‘debt’, ‘repay’ and ‘redeem’. Helpfully, we can identify this because he uses inverted commas to signal a change in meaning and he refers to his “sense of the term”:

‘[Lonergan] goes on to argue that we’d still use the government’s currency even if it could not be “redeemed” (in my sense of the term)’.

Precisely! Randall Wray needs to put the word ‘redeem’ in inverted commas when he talks about “redeeming” and “promises to accept currency in payment for taxes”, because he does not actually mean ‘redeem’. Also, he should make it clear that it is his “sense of the term”, because he is clearly not describing repayment, he is describing something else. You can decide yourself what he is describing – when I quote him directly he seems displeased.

I think Randall Wray is simply providing a description of the payment of taxes – a liability of the taxpayer, but something which in no way changes the distinct properties of money and debt. This is not to say that the requirement to pay taxes in money issued by the state is not an important means by which the state establishes its monopoly – it is (and it is wonderfully described by Mitchell Innes). State directive is an effective way to establish a dominant standard – and a dominant standard with network externalities is extremely difficult to break.


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Eric Lonergan (Guest Author)

Eric is a macro fund manager, economist, and writer. His most recent book is 'Money' (2nd ed) published by Routledge. He is also a supporter of Big Issue Invest (BII), the investment arm of The Big Issue, and is one of the initial limited partners in BII’s Social Enterprise Investment Fund LP.

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