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Nick writes, "Jon: OK. But are you saying that store of value is one of the attributes of money, rather than a defining function?"

I agree that under a hyperinflation 'currency' is still money but is not really a store of value under some definition of the words.

So I would agree that the point of Gresham's law is that the store of value function can become cleaved from the circulating medium of exchange...

Mises would label the circulating money as a 'money substitute' and the money which retains its store of value property 'money'.

Jon: "Why would you have the tax levied on deposits?"

That's Gesell's idea, altered for the computer age. His idea (100 years ago) was for people buy stamps to put on their bills every week. The point was to encourage people to spend their money, by eroding its value in a tangible and predictable way. (Acting on reserves and base money is neither manifestly apparent nor predictable. Also, the tax is not inflationary, but deflationary.) For regular checking accounts the depositor would pay the tax, for savings accounts the bank would. (Banks would probably not pay interest on savings accounts.)

Nick Rowe: "Someone who took out his screwdriver to see if windows or Linux had been installed on a computer would be making a category mistake."

Even if he stuck the screwdriver in his ear? ;)

The medium of exchange is record keeping.

See, sticking a screwdriver in his ear is not a category error, because he plainly has a screw loose. ;)

Nick: Your example has one crucial flaw: you've changed the analogy completely. You started by asking why it was that a political boundary has no effect on the level of water, and posing the counterfactual as though it did. At that point, I asked you why it would occur to anyone that it should---what is the plausible basis for this belief that I would even bother to consider hypotheses for which I would *need* to talk about the counterfactual. In response, you presented me with a completely controlled experiment, where you set everything up from the beginning with the exception of the object of study: the properties of fluids.

At this point, I say, great! The whole known history of your experiment now practically demands the counterfactual. Why does the water never higher on the side of the tube on which *you* pour it?

Of course, we're a long way now from the question of why there isn't a water wall between Canada and the USA.

So now, you'll tell me that you can't come up with an experiment in economics that is as well-controlled as the U-shaped tube. But that's a *good* thing for you; any experiment you came up with of this nature would almost certainly fail to reflect almost all of the properties of a real economy with a real history. Then you present to me a *natural* experiment. And then I ask you the crucial question: what about this natural experiment tells you that it is reasonable to extrapolate the result to the rest of the world?

And if you answer, it is sufficient that human beings in the here and now do exchange, then I am going to have to point out that whenever you mention something like "equilibrium time-paths" or whatever the phrase was, you are making a claim about a historical process. And therefore, the conclusions you draw from your hypotheticals and natural experiments must be mappable to some sort of plausible historical process. And the Graeberites are telling you that the process you require probably did not exist in history, and they are providing a reason for why it is not so.

That's what's at stake here. Yes, you *can* construct a model based on those assumptions. Can you take the model and use it in the necessary extrapolative function that is supposed to give economists their policy-engineeering cred? I, for one, have long believed that the answer is no; that these tools are no more plausible than my crude, lay moral intuition, and probably less so. I'm pleased about this Graeber discussion, because it happens to validate that belief yet again.

Nick: "If gold was money, for example, gold would be the medium of account and an ounce of gold might be the unit of account"

No it wouldn't! I've been biting my tongue, but now that Lee's said it: Gold would be the medium of exchange. An ounce of gold would be the unit of account. There's no "medium of account". Accounting doesn't need a medium, but exchange might, except in a pure exchange or barter economy, in which case it's still nice to have a numeraire or unit of account. There. I feel better now.

I'm starting to get pulled over to the moa side.(not that anyone cares)
I'm standing here continuously varying the distance between finger and thumb in either hand. Left for moe, right for moa. Distance being value.(or wealth)

And if sticky prices are the transmission mechanism for depressions et al, then moa 'unit' fluctuations are a way bigger problem, then moe 'units'. The moe unit fluctuation can be compensated with just math, (unless it is indivisible or discrete).

Say the unit of account's value was perfectly stable(rh for those following along). Then it doesn't matter how widely the unit of the moe value oscillates, you can subdivide or multiply to find out how much you actually owe the store, to make your purchase.

But my fingers and brain cannot yet handle Andy's comment.

Major caveat,(a consistent moa unit) might push the sticky price problem into the exchange rate at the stores, whether each store uses individually determined exchanged rates or a universal rate. Similar to Americans in Canada paying with USD at stores using different exchange rates. Based on the stores difficulty in translating that currency to the moa, CAD. Since the moa has to consist of trade-able commodities, these problems exist.

So you can either have a stable exchange rate, (one-to-one in case of moe=moa), a stablish unit of moa with sticky exchange rates or some other choices, that I cannot enumerate yet. So now I'm just confused.


K: I think accounting does need a medium as I tried to show with metric system and Celsius. Or you are measuring nonsense.

More properly you are measuring nothing. You can't get liquid water to get hotter then 100 degrees Celsius, I've tried;) They just took the gap between water freezing and boiling divided it by a hundred and called it a degree. If you want to quote prices in terms of a medium that you can't exchange for, then its value is unknowable. I will hereby sell the internet my car for something worth 1000 zoblooms. And if everyone else quotes in zoblooms, but no-one exchanges for them, the value of a zobloom is unknowable. For example, I sold my car for $2000 CAD, which equaled the posted price of 1000zoblooms, whereas someone else sold his car at the exact same time for $60000 CAD which met his posted price of 1000zoblooms. People will ignore the meaningless zoblooms.

This comment is deletable, if leads to tangents or I'm off base etc. I won't be on the internet tomorrow.

You don't need a medium, edeast. The nominal anchor can result from either money demand (in which case you need a medium) or just sticky prices (in which case you don't). We are just rehashing the history of monetary theory here.


We have a well documented history of the development of money from Sumeria to the first coins over some two millenia. It goes:

First - A clay token denoting an obligation on a particular person to deliver particular goods to a particular person; which becomes:
2. A clay token denoting an obligation on a particular person to deliver particular goods to any holder of the token; which then becomes:
3. A token denoting an obligation on a particular person to deliver goods equivalent to some number of standard units of account to any holder of the token. These become transferable, so you have:
4. A token denoting an obligation in general to deliver goods equivalent to some number of standard units of account to any holder of the token. When enough of the user population becomes transitory, then it becomes convenient to issue:
5. Metal tokens which by force of law are deemed equivalent to some fraction/number of standard units of account. These are also found useful for building prestige, disseminating official propaganda and settling final accounts.

Each stage adds to, but does not replace, the previous stage. So trade is today usually conducted as it has been for millenia, using stages 3 and 4. The metal tokens of stage 5 have assumed enormous psychological importance, but were never used for more than a small fraction of the total volume of exchanges.

Peter T,

"Metal tokens which by force of law are deemed equivalent to some fraction/number of standard units of account."

Not all of us have reached this "stage", nor does it seem particularly necessary for any purpose-

http://www.ft.com/cms/s/84a323d0-50ba-11e1-8cdb-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F84a323d0-50ba-11e1-8cdb-00144feabdc0.html&_i_referer=http%3A%2F%2Funeasymoney.com%2F (Paywalled)

http://uneasymoney.com/2012/02/08/john-kay-puts-legal-tender-in-its-place/(Non-paywalled discussion)

Nick, I don't want to be insulting but you quite clearly have not read or engaged with Graeber's work fully. He isn't a visiting anthropologist who is 'confused' because he doesn't 'get' economics; he is someone who knows copious amounts about the history of money and debt, and just because his conclusions disagree with your textbooks it doesn't mean you can be so dismissive.

Unlearning: as I said above, I haven't done more than skim Graeber's essay lightly. This post is not an attempt to engage Graeber. This is mostly about me vs economics textbooks on the definition of money. Secondarily it is my response to John Quiggin. David Graeber comes into this a distant third, and very indirectly, and because John Quiggin said he was concluding from reading Graeber that we should treat money as a store of value.

If some of what I say here applies to Graeber, that's a byproduct.

Unlearning: "...and just because his conclusions disagree with your textbooks..."

Actually, this post is about me disagreeing with the textbooks. You seem to have totally misread this post. Not everything is about brave lefty outsiders battling against a monolithic economic orthodoxy of Nick and the textbooks. Jeeeez!

Could not read the whole list of comments so maybe it has been raised there but sorry who is using money to store wealth and by money you probably mean cash?! As far as I know not many people and most likely no one. The cash in my pocket is not there because I wanted to store my wealth in my pocket. Moreover I hardly ever have more than 40 euros in my pocket. There is no such function of money as store of wealth. Might have been some time ago. Today - no. I store my wealth in real assets and liabilities of other people (entities).

Ops. It is better to think twice before writing. Yet I think you get my drift. The wealth function of money today is seriously diminished to the level of max 40 euros per capita. Does not sound like a lot of wealth.

I'm finding von mises, "Theory of Money and Credit"/regression theorem, useful. It's like recursion with a base case.

Sir James Steuart has a nice mix of real bills and chartalism. Taxes just one of many demands for money.

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