Robert, thanks for the explanation. I think I understand now but 
permit me to rephrase the policy goal that a dated currency policy 
proposal aims to achieve.

There are two kinds of money: transferable bank deposits and currency. 
The total money balance of each individual consists of two parts: a 
deposit balance and a currency balance. By withdrawing currency from a 
bank, an individual can increase her currency balance at the expense of 
her deposit balance. And vice versa.

The government can more easily track deposit balances than currency 
balances. Therefore, it can more easily enforce a sales tax or an income 
tax on the money income earned by retailers and producers if individuals 
transfer deposit when they exchange than if they transfer currency.

Given these assumptions, sellers of goods, in anticipation of a higher 
tax on bank-recorded deposit transfers than on exchanges of currency, 
tend to offer lower prices on currency transactions than on deposit 
transactions. In order to take advantage of the lower prices, buyers of 
such goods tend to withdraw more currency than they would in the absence 
of a tax or in the absence of more easily traceable deposit transactions.

Underground economic activity consists of buying and selling consumer 
goods and factors of production for currency in order to avoid the sales 
or income tax.

The POLICY GOAL is to reduce the amount of this underground, 
tax-avoidance economic activity.

Assuming that all currency consists of paper notes, dated currency 
refers to currency which, at a date and time specified on the face of 
the paper note, will become worthless as legal tender. This means that 
after the date on the face of the note, no judge will enforce a contract 
that is stated in terms of the dated currency and the government will 
not accept the currency in payment of taxes. Banks may be ordered by 
regulators to stop accepting deposits of the dated currency. The 
government also does not offer to exchange the dated currency for 
anything of  value.

The literature you have in mind proposes that dated currency, as defined 
here, could achieve the above-stated policy goal.

Is all this an accurate and fair interpretation of your implicit 
assumptions and definitions?



If these are the correct assumptions, my analysis was not directed at 
the policy proposal you implicitly had in mind. The policy would not 
cause the use of money to die; it would cause the use of currency will die.

However, could not the effect of eliminating the use of currency in 
exchange be achieved more simply by outlawing all currency transactions 
after a certain date?

My earlier analysis would be correct only in a pure currency economy.



On 9/28/2010 9:01 AM, Robert Leeson wrote:
> The consumed income tax structure is a (witholding) tax on money balances (earning income ceases to be a taxable event). This increases the incentive to economise on the holding of currency; dated money imposes costs on the underground cash economy.
>
> Robert Leeson
> [log in to unmask]
>
>
> ----- Original Message -----
> From: "Pat Gunning"<[log in to unmask]>
> To: [log in to unmask]
> Sent: Tuesday, 28 September, 2010 10:33:29 AM
> Subject: Re: [SHOE] Dated currency
>
>    I wish this thread made sense to me. Perhaps someone can clue me in?
>
> Why on earth would someone want to hold money that is destined to die?
> If I were a speculator in such a system, I would short sell all of the
> nation's money today.  That is, I would borrow money from everyone and
> then use it to buy their durable assets, promising to repay the money
> the instant before it is scheduled to die. At that time, I could buy the
> money back for a song and repay my money debts. Ultimately, I would gain
> a bunch of real assets in exchange for my song.
>
> Anyone who lent me money to buy goods would surely not be a shrewd operator.
>
> Is it not true that money that is due to die tomorrow would, in a world
> of reasonably astute people, die today? How can an item be acceptable in
> exchange by shrewd operators today if they know it will not be accepted
> in exchange tomorrow?
>
>
> On 9/26/2010 4:23 AM, Robert Leeson wrote:
>> Is there any literature on dated currency (currency that has an expiry date as legal tender) as an assault on the underground economy?
>>
>> Robert Leeson
>> [log in to unmask]
>>
>>
>


-- 
Pat Gunning
Professor of Economics
Groton, Connecticut
http://www.nomadpress.com/gunning/welcome.htm