What is the purpose of government?

Coit

Guest

« on: August 23, 2011, 01:14:26 PM »

I have seen Observer make a passionate plea, based on all of the books he's read about the founding fathers, to find that the purpose of our government is to follow Observer's interpretation of the founders' view of the Constitution.

I see Dustup state in big bold letters that

Quote

The Government needs to follow the Constitution and Protect our freedoms, provide a strong national defense, take care of our borders, Have a sound currency. That was the responsibility of the federal government, not to run our lives and run everything in the economy and extend the interstate-commerce clause and the general-welfare clause to do anything they want to do! Damn it man! Quit letting them give you your opinion.....think!

Quit letting them give you your opinion....think?

The founders are dead. The idea that Observers' opinion of the intent of the founders is anything more than his opinion is on par with Dustups brainless and incoherent appeal to, as he says, "think."

I have made this statement which, admittedly, is not my own. I have said that the people created our government as a means to further private sector prosperity generally. The fact that this was done in part by a group of people we call "founders" makes no difference at all. Our government gains legitimacy not by Observers' interpretation of their intent or even their actual intent, if were even possible to know their actual intent. It is not possible to know their actual intent so that part of the equation is moot and about as pertinent as the proverbial how many angels can dance on the head of a pin. We live in a democracy. It is our intent and only our intent as a people that matters. If it would be our intent as a people to constrain ourselves to serve only the end of seeing to it that Observers' interpretation of the founders' intent, then so be it. But why would we ever be that stupid? Why would we make anyone's interpretation of the founders' intent an end in and of itself?

By generally I mean that to be legitimate it must not benefit only the few, but rather it must benefit at least most of us. The government is not an end in and of itself and therefore is corrupt and defective if it benefits itself or only a few. It follows that a corrupt or otherwise defective government that fails to further private sector prosperity, generally, is subject to dissolution by the people who created it. It also follows that the government must actively regulate and help build infrastructure to benefit the private sector, generally.

I elaborated a little on what I said above, but I went on to say

Quote

This is where Observer falls short. He uses the crutch of his idea that he can speak for the founders and simply go to his default position that this or that was not the intent of the founders. The idea of the intent of the founders is nice, but not really all that instructive. Our government is our government, not the government of the founders. They're dead.

Another fact that is lost on just about everyone here is that Nixon ended any linkage of our currency to metals in 1971. We thus have a modern fiat currency and the rules of a fiat currency are very different from the rules that pertained to a currency linked to metals. Public and private sectors are not opposing forces and it is not a decidedly bad idea to regard them as such. The two sectors are actually a partnership in that the state creates and regulates our fiat currency while the private sector accepts it as legal tender. Government aids innovation, productivity and growth but the private sector drives those benefits. Using the irrefutable logic that government does not exist to maximize its own benefit, why would management of its balance sheet be any different? The government should manage its balance sheet in a way that maximizes the benefit to the private sector by encouraging private sector prosperity, productivity, innovation and growth.

Modern fiat currencies are nothing more than a token issued by the government with no relation whatsoever to commodity based money. I would refer you to the work of people like Alfred Mitchell-Innes, Abba Lerner, and Hyman Minsky. To answer notoc's conundrum, the private sector (horizontal) cannot create new financial assets because any way you look at it you get both a debit and corresponding credit to any action by the private sector. For example if a bank loans money it extends a credit by creating a corresponding deposit. The deposit is a credit and the corresponding debit is the loan. The borrower has an asset, the deposit, and a corresponding liability, the note. This is net zero and when interest is paid it is also a net zero for similar reasons. Both entities in the transaction get debits and credits.

On the other hand when governments spend in a fiat currency system the treasury disburses funds by crediting bank accounts. Reserves are transferred from the Treasury's account at the Fed to the recipient's bank. The recipient's deposit has no corresponding liability in the banking system so this vertical creation results in an increase in non-government financial assets. And the government debt is not true debt. Reserves transferred to banks are used to buy Treasuries. When Treasuries are sold or redeemed, the reserves are simply switched back, creating a deposit again. This is just a switch from demand to time back to demand in a bank account and a switch between reserves and securities at the government level. Governments do not draw on revenue, borrow or sell assets to cover their debts, as private sector participants do. It is simply a matter of credits and debits on the government's books and though it appears that there is a financial relationship between the central bank and the treasury due to this accounting, it's a complete fiction.

Taxes imposed are the exact opposite of spending. When the government taxes it removes funds from the private sector.

I could further give you what notoc calls "maths" to show you how this applies to the government having a role in managing full capacity utilization, or full employment. Keep in mind, though, that this is not theoretical, but rather it is all based on operational reality. The bottom line is that the U.S. government has a monopoly on the supply of currency and therefore it never actually has or doesn't have money. And again, the bottom line here is not the irrational goal of benefiting the government's balance sheet or appease Observer's egoistic notions that he is the protector of the founders. The goal is to maintain fictional book entries to maximize the benefits to the private sector.

Again, these are not my ideas and actually I don't completely subscribe to these ideas espoused by this school of thought. I could identify the particular school of thought that I attempted to summarize here, but I hesitate to do that because it's not important. What I do subscribe to and do agree with is the premise regarding the purpose of the government, and what I would like to know is whether that premise makes sense to others. Or do you think we really ought to bow down to Observer and his fiction?