The card game analogy works reasonably well for private corporations (they are legal fictions ultimately controlled by shareholders, directors, or owners).
But it seems problematic when extending it to the sovereign government / issuer of the currency.
A monetary sovereign can create its own liabilities in its own unit without ever facing nominal insolvency. This is fundamentally different from a household or firm, which can be forced into default or restructuring even if it has real assets. Why should we treat the issuer the same as currency users when their operational constraints are fundamentally different?
I'm convinced it does make sense for governments and central banks to be included, and in fact they *have* to be included to use it for macroeconomics.
You're right that the operating constraints are typically different for a government or a central bank. In the card analogy, that's represented by there being *different rules* about which actions can occur. But the representation of what a government or central bank owns, is owed and owes, as purple, green and pink cards respectively, still works.
Imagine a private sector player, Bob, has £50 cash (represented by him holding a green card; the BoE has the corresponding pink card). Bob can't force the BoE to settle with 0.01 oz of gold (transfer of purple card from BoE to Bob; Bob discards his green card and BoE discards its pink card). But if the BoE itself decided to sell 0.01 oz of gold for £50, those card actions would exactly represent the transaction.
"Why should we treat the issuer the same as currency users when their operational constraints are fundamentally different?"
The reason we should do this is that the analogy works extraordinarily well, and helps us to understand not only basic economics, but even macroeconomics. The analogy is just a different representation of what Steve Keen does with Godley tables, or Perry Mehrling does with balance sheets on a blackboard. What I like about the card analogy is that it's familiar and intuitive.
The purple/green/pink card system (or raw balance sheets) can still describe what the government or central bank owns, is owed, and owes. Currency in private hands is a green card (debt asset); the corresponding pink card sits with the issuer. Creating currency is the issuer writing a new pink card and giving the matching green card to the private sector. Accepting the currency back in tax is the reverse: the green card is returned and both cards are discarded. That bookkeeping works and is consistent with Godley-style stock-flow matrices or Mehrling’s balance-sheet teaching.
Your Bob / central bank / gold example, however, is commodity-money logic. In a pure fiat system there is no purple card the issuer is obliged to deliver against the green card. The green card is the unit of account. The issuer cannot be forced into default by running out of its own unit, and it does not need to improve its recorded net worth by redeeming the cards in order to remain operational.
Different rules about which actions are allowed can, in principle, encode the operational asymmetry: the issuer can create pink/green pairs at will while private actors cannot. Simply saying “different rules about which actions can occur” is necessary but not automatically sufficient. The rules must also suspend the private-style insolvency concept for nominal obligations denominated in the issuer’s own unit, and they must not require the issuer to “settle” by delivering something else. Otherwise the representation quietly re-imports the constraints that apply to currency users.
I am not yet convinced the card analogy, as currently framed, fully captures a state that can create a nominal liability (currency, reserves, or other claims in its own unit) at will, adding a debt asset to private balance sheets and a corresponding liability to its own, while remaining free of the net-worth and insolvency constraints that bind private actors.
Thanks for your thoughts. I hope you'll find this answers your concerns.
"Creating currency is the issuer writing a new pink card and giving the matching green card to the private sector. Accepting the currency back in tax is the reverse: the green card is returned and both cards are discarded. That bookkeeping works and is consistent with Godley-style stock-flow matrices or Mehrling’s balance-sheet teaching."
Yes. I'm glad you agree with that. (I'd also add that when tax is paid, the taxee's pink card and the government's green card for the tax debt are also discarded).
"Your Bob / central bank / gold example, however, is commodity-money logic. In a pure fiat system there is no purple card the issuer is obliged to deliver against the green card."
I'm not quite sure what you're disagreeing with here. I agree that the central bank isn't *obliged* to deliver a purple card. (I wrote "Bob can't force the BoE to settle with 0.01 oz of gold"). All I'm saying is that *if* the central bank decides to sell some gold (which central banks can certainly do in the current system), the way that works in the accounting (and the way it's represented in the card analogy) is *identical* to settlement: the BoE discards a pink card, Bob discards a green card, and the BoE transfers a purple card to Bob.
"The rules must also suspend the private-style insolvency concept for nominal obligations denominated in the issuer’s own unit, and they must not require the issuer to “settle” by delivering something else."
It sounds as though you're inferring an *implicit rule* that holders of pink cards are required to settle directly by transferring tangible units (purple cards). But that *isn't* a part of the card analogy. Whether settlement is required for none, some or all players is part of the *rules* of how the cards can be drawn, transferred and discarded.
By the way, as I understand it, there *is* one obligation on the BoE under the current system. If someone is indebted to the BoE, it must accept cash or reserves in settlement of that debt. That would be a rule in the card analogy.
The card game analogy works reasonably well for private corporations (they are legal fictions ultimately controlled by shareholders, directors, or owners).
But it seems problematic when extending it to the sovereign government / issuer of the currency.
A monetary sovereign can create its own liabilities in its own unit without ever facing nominal insolvency. This is fundamentally different from a household or firm, which can be forced into default or restructuring even if it has real assets. Why should we treat the issuer the same as currency users when their operational constraints are fundamentally different?
Thanks for your comment!
I'm convinced it does make sense for governments and central banks to be included, and in fact they *have* to be included to use it for macroeconomics.
You're right that the operating constraints are typically different for a government or a central bank. In the card analogy, that's represented by there being *different rules* about which actions can occur. But the representation of what a government or central bank owns, is owed and owes, as purple, green and pink cards respectively, still works.
Imagine a private sector player, Bob, has £50 cash (represented by him holding a green card; the BoE has the corresponding pink card). Bob can't force the BoE to settle with 0.01 oz of gold (transfer of purple card from BoE to Bob; Bob discards his green card and BoE discards its pink card). But if the BoE itself decided to sell 0.01 oz of gold for £50, those card actions would exactly represent the transaction.
"Why should we treat the issuer the same as currency users when their operational constraints are fundamentally different?"
The reason we should do this is that the analogy works extraordinarily well, and helps us to understand not only basic economics, but even macroeconomics. The analogy is just a different representation of what Steve Keen does with Godley tables, or Perry Mehrling does with balance sheets on a blackboard. What I like about the card analogy is that it's familiar and intuitive.
Thanks for the response.
The purple/green/pink card system (or raw balance sheets) can still describe what the government or central bank owns, is owed, and owes. Currency in private hands is a green card (debt asset); the corresponding pink card sits with the issuer. Creating currency is the issuer writing a new pink card and giving the matching green card to the private sector. Accepting the currency back in tax is the reverse: the green card is returned and both cards are discarded. That bookkeeping works and is consistent with Godley-style stock-flow matrices or Mehrling’s balance-sheet teaching.
Your Bob / central bank / gold example, however, is commodity-money logic. In a pure fiat system there is no purple card the issuer is obliged to deliver against the green card. The green card is the unit of account. The issuer cannot be forced into default by running out of its own unit, and it does not need to improve its recorded net worth by redeeming the cards in order to remain operational.
Different rules about which actions are allowed can, in principle, encode the operational asymmetry: the issuer can create pink/green pairs at will while private actors cannot. Simply saying “different rules about which actions can occur” is necessary but not automatically sufficient. The rules must also suspend the private-style insolvency concept for nominal obligations denominated in the issuer’s own unit, and they must not require the issuer to “settle” by delivering something else. Otherwise the representation quietly re-imports the constraints that apply to currency users.
I am not yet convinced the card analogy, as currently framed, fully captures a state that can create a nominal liability (currency, reserves, or other claims in its own unit) at will, adding a debt asset to private balance sheets and a corresponding liability to its own, while remaining free of the net-worth and insolvency constraints that bind private actors.
Thanks for your thoughts. I hope you'll find this answers your concerns.
"Creating currency is the issuer writing a new pink card and giving the matching green card to the private sector. Accepting the currency back in tax is the reverse: the green card is returned and both cards are discarded. That bookkeeping works and is consistent with Godley-style stock-flow matrices or Mehrling’s balance-sheet teaching."
Yes. I'm glad you agree with that. (I'd also add that when tax is paid, the taxee's pink card and the government's green card for the tax debt are also discarded).
"Your Bob / central bank / gold example, however, is commodity-money logic. In a pure fiat system there is no purple card the issuer is obliged to deliver against the green card."
I'm not quite sure what you're disagreeing with here. I agree that the central bank isn't *obliged* to deliver a purple card. (I wrote "Bob can't force the BoE to settle with 0.01 oz of gold"). All I'm saying is that *if* the central bank decides to sell some gold (which central banks can certainly do in the current system), the way that works in the accounting (and the way it's represented in the card analogy) is *identical* to settlement: the BoE discards a pink card, Bob discards a green card, and the BoE transfers a purple card to Bob.
"The rules must also suspend the private-style insolvency concept for nominal obligations denominated in the issuer’s own unit, and they must not require the issuer to “settle” by delivering something else."
It sounds as though you're inferring an *implicit rule* that holders of pink cards are required to settle directly by transferring tangible units (purple cards). But that *isn't* a part of the card analogy. Whether settlement is required for none, some or all players is part of the *rules* of how the cards can be drawn, transferred and discarded.
By the way, as I understand it, there *is* one obligation on the BoE under the current system. If someone is indebted to the BoE, it must accept cash or reserves in settlement of that debt. That would be a rule in the card analogy.
Does that help?