There is a general belief that money is somehow "something", the quantity of which can be increased or decreased, or which has "velocity" or which "flows" from some places to other places.
I cheerfully admit that I too talk in these terms, by saying things like "I have saved up some money" or "I have some money in the bank" or "I moved some money from one bank account to another" or "I spent some money" but that is just shorthand or laziness.
Truth of the matter is, money is not a thing in itself, it is a unit of measurement. Kilograms are not weight (or mass), they are a unit of measuring the same. There's no point saying "I have ten kilograms" unless you say of what. Miles are not distance, they are a unit of measuring distance. Nobody says "It is ten miles" without saying from where to where, and so on.
I've spent my life doing accounts, and I am very good at it, but let's not forget that accounts are not a thing in themselves any more than a book is a thing in itself. The numbers in the accounts merely represent the cost or value of real things; in the same way as the words in the book merely represent real things (or help the reader to envisage or understand real things).
Q: So what is "money" a measurement of?
A: It is a measurement of indebtedness.
1. What kick starts the process is if somebody somewhere is prepare to run up debts, i.e. if you pay in the shops with an IOU, or if the government prints bank notes (or runs a deficit) and so on. That means that debtor wants to consume (or invest in real assets) today and is prepared to hand over some of his earnings in future until the debt is repaid.
(Let's ignore the sort of loans which the lender knows the borrower will never be able to pay off because of compound interest, i.e. doorstep loans and the loans which Western banks make to African countries).
2. So if one man has £1 in "money" (be that an IOU issued by a good borrower, coins, notes, bank account, corporate bonds, government bonds, whatever) he has a financial asset which can only exist as long as somebody else has a financial liability of £1 (be that the person who wrote the IOU, the Royal Mint, the bank, the corporation, the government, whatever). The zero is split into an asset and a liability, and the two can merge back into nothing again when the loan is repaid and the cash withdrawn and spent.
3. If nobody ever wanted to borrow, then it would be impossible for anybody to save "money", they would have to save real things (by buying a load of tinned food and storing it in the cellar etc).
4. Borrowing doesn't have to be in money of course, you can feed your neighbour's pets while he's on holiday on the tacit understanding that he "owes you a favour" which he will "repay" by watering your plants while you are on holiday etc. That type of indebtedness, while informal, is in principle exactly the same as financial indebtedness.
(Banks love splitting the zero of course, because they can charge the borrower more interest than they pay the depositor, and they hate it when loans are repaid and deposits withdrawn. Separate topic.)
5. So what the man who thinks he has £1 "money" really has is the ability to consume £1's worth more of goods and services in future, in the same way as the borrower will have to consume £1's worth less of the wealth he generates (his earnings).
6. Which is why it hacks me off right royally when people write articles explaining what a central bank could or should do, or what it should target. The new vogue is that central banks should target nominal spending.
7. Apart from this being a veiled excuse to run deficits, stoke inflation, depress interest rates, bail out banks and prop up the land price bubble etc, I ask myself "How?" and "Why?" Above and beyond providing the core functions of the nation-state (itself very important and A Very Good Thing, but only a small part of what modern governments actually do), all central banks and governments do with all their fancy meddlin' is to transfer wealth from some groups to other groups (i.e. reduce the future consumption opportunities of one group and increase the consumption opportunities of the other group); with the general trend being to transfer wealth from the productive sector to the unproductive sector; from savers to borrowers; from future taxpayers to today's taxpayers; from tenants to landowners etc. In principle they could do the reverse, but that appears to be firmly off the agenda in this country.
8. And what also hacks me off is when people say that "there are X trillion dollars in tax havens". No there bloody well aren't. There are real people in real countries who are in debt and other real people in real countries who have additional future consumption opportunities. The fact that the numbers are only recorded on a computer somewhere in the Bahamas is nigh on irrelevant. They could be recorded on a computer on the Moon for all the difference it makes; there would still be no "money" or net wealth on the Moon.
Forbidden Bible Verses — Genesis 43:24-34
10 hours ago
19 comments:
That makes two of us who are hacked off, but I can't be arsed any more to keep banging on about it. So, thanks for posting that. Oh, and I am a very very average accountant....!
What's 'really hacked me off' tonight is the hysteria about 'above inflation' rail fare rises in the East. One, it demonstrates epic ignorance as to what inflation is, and that the rises are the result of inflation, not its cause. Plus just what is the bloody 'rate of inflation'? AAaaarrrrggghhhhh....I'm boring myself now.
it's only 2 january and I already seem to have spent too much time conbatting myths and not enough watching tatu.
Excellent work Mark. See also "Capital is lightly taxed relative to labour because capital is easier to move than labour." No it fucking isn't. On the one side, it's a damn sight easier to move overseas than it is to pick up an entire factory and shift it that way. And on the other, if capital is lightly taxed relative to labour, why do we have negative real interest rates and a minimum wage? Surely it "should" be the other way around?
L, you wrote the book on inflation, but I'm talking about something much simpler and more basic than that.
G, they only made two singles, didn't they?
RA, which part of the claim do you disagree with? That "capital" is lightly taxed or that it is easy to move? And what do you mean by "capital"? Further, are you referring to the taxation of capital itself (e.g. inheritance tax) or the income generated from capital (e.g. corporation tax)? How do you then distinguish between that part of a company's profits which are derived from labour and those derived from capital?
Good post. Did you see that hysterical (in both senses) discussion between various people claiming to understand economics over at Tim Worstall's?
The one thing I would add is that the government can only transfer wealth from savers to borrowers if the savers allow it to. If you have enough wealth to be seriously affected by 5% inflation you probably shouldn't be storing that wealth as units on a screen in the Bahamas or anywhere else.
BE
BE, ta, no (which debate do you mean, some Faux Lib vs everybody else crap?) and agreed, respectively.
BTW The idea that words in a book merely represent real things is hotly disputed by deconstructionists and other lingustic philosophers.Their view is that words in a book are just marks on the page with a tenuous relationship to reality.Their guru Saussure pointed out that words in one language simply did n't exist in another so how could either be said to exist?One that comes to mind (mine not Saussure's) is "home".German "heimat" appears to cover your native region: the French don't seem to have a noun for it all, I believe though my French is not trustworthy.But you get the idea.I once tried to explain the concept in a class by pointing to a table and saying you could n't ,of course, mistake that whereupon some smart girl (nb how ambiguous or deconstructible is "smart"?)said it was a desk.Since I had ordered the furniture I looked up the order and receipt:they said "desk".I would have thought a desk should have a drawer.Not so apparently.
DBC, a desk is where you work and where stuff is parked more or less permanently (computer, phone, stationery etc). A table is where you eat and which is cleared regularly.
For sure, you can eat at your desk and work at the kitchen table, but you wouldn't remove your computer etc just to wolf down your lunchtime sandwich. But if you work at the kitchen table, you have to tidy it all away before the next meal time.
And desk drawers are for wimps. They just accumulate crap.
"What's 'really hacked me off' tonight is the hysteria about 'above inflation' rail fare rises in the East"
It always hacks me off, too. Nobody points out that, if the trains are overcrowded, the rail companies are charging too little. What the government should be doing is paying the rail companies less subsidy, not holding down the fares. I did, however, notice vigourous shroud-waving by the rail companies this morning when a pol suggested just that.
I suppose, it all boils down to the usual govt. use of taxpayers money to prop up land prices. Higher rail fares come straight out of the value of houses in the commuter belt and, to a certain extent, of the value of commercial property in London.
@MW the difficulty of distinguishing between a table and a desk shows these post structualists knew a thing are two.If you can dispute the identity of such concrete nouns what chance have you got with abstract nouns and metaphors?This desk/table uncertainty would probably be classed as aporia in their lingo,illustrating Derida's differance which as you will probably appreciate is different from difference.( I think I have spelt the great philospher's name wrong to add further confusion )
Your whole thesis that a table is a place for eating which becomes a desk when computers and whatnot are added bounces some distance off the issue of identity.You cannot say a table becomes a desk when certain desk-like attributes are put on top of it.It is still a table underneath.
Drawers, I'm afraid are the key,(better if they have keys) and your prescriptive attitude that they denote (or connote) wimps is disturbing.You are aware that Mussolini sat at a great big desk (standard twin pedestal four drawers each side) while commanding his minions to work on plain surfaces so that everything was cleared by the end of the day.There you have his problems in miniature I would suggest.Common humanity (abstract noun= baloney)cries out for drawers in which to conceal work too boring or frighteningly difficult to do and other things like a cake,pictures of nude women, a reliable water pistol (these modern pump-action ones are terrific for range but do leak) to relieve the tedium.But I suppose nowadays there is always the Net:paradoxically, to escape into.
B, how do you mean "nobody ever points out.."?
YPP's transport policy statement says this:
"we will not engage in the same doublespeak as the other parties who all claim to be able to make [rail travel] cheaper, more reliable and less crowded. Basic economics tells us that the quickest way to reduce overcrowding is to increase ticket prices, which is not what people want either."
DBC, exactly, Mussolini had the most famous desk - with lots of drawers. So drawers are for wimps and dictators.
Franco had the best desk. All he had on it was an In and an Out tray. The first was labelled "Problems which will sort themselves out" and the second was labelled "Problems which have sorted themselves out".
And if naked ladies are your thing, then get a job in a car repair workshop.
"B, how do you mean "nobody ever points out.."?"
In the meeja.
"a desk is where you work and where stuff is parked more or less permanently (computer, phone, stationery etc). A table is where you eat and which is cleared regularly."
AFAICS, a desk is a table which you use for writing, so the set "desk" is simply a subset of the set "table". Since it is a name defined by use, it is impossible by observation to tell whether a piece of furniture with a flat top and legs with or without drawers (tables have drawers, too) is a desk or a table. If you work at your kitchen table, it becomes a desk until you clear your stuff away to eat your supper, when it reverts to being a table. However, what is it if you work on one half and eat on the other?
B: "what is it if you work on one half and eat on the other?"
Then one half is a table and the other half is a desk. As you say, it is a name defined by use. It's like the difference between a sink and a basin; a pillow and a cushion; an entrance and an exit; an umbrella and a parasol, etc.
You cannot define things by use: a
gun does not become a cosh if you hit somebody over the head with it.
A pity this thread is coming to an end because I wanted to raise the issue of the velocity of money, which you regard as being of little importance .They have revived Gesellian velocity money in the Tyrol after it proved such as success in the 1930's.Velocity has increased by 50% because the money is very physical and they have to pass it on/spend it before the tax comes due on it.The official Chiemsee website is in German and you could make yourself useful by translating it ,and representing their POV ,instead of pursuing this mad ant-desk campaign
which does not have any legs(BTW I have four desks in my modest establishment one of which has no legs,has a sloped top and is unopenable because I have lost the key: it probably contains fireworks.But is it a desk?Not a question as important as What about the Chiemgauer?
DBC: "You cannot define things by use"
ALl right: entrance, exit. What is the physical difference between these two doors?
Velocity of money is complete hokum because it divides a meaningful figure GDP by a made up figure "money supply", as money does not exist, how can you measure how much there is? All you can do is measure total indebtedness.
Actually, GDP (or total output, or full employment, or whatever) is the only figure which matters.
http://markwadsworth.blogspot.co.uk/2012/02/meaningless-statistics-velocity-of.html
@MW Hello anybody down here?
There is no physical difference between 'exit' and 'entrance' because they denote actions not things: 'exit' is the present tense Latin verb for he ,she it leaves as you doubtless know: entrance seems be to some kind of verbal noun (gerund) construction akin to tax avoiding/tax
avoidance. Certainly anybody putting a physical interpretation on the sentence "Everyboy was spellbound by her entrance" would have be a bit suspect.
As to the money velocity issue, I cannot believe you think it is all something got up by interested parties.How do you explain the surge of spending at Christmas?Does the GDP come out of hiding and manifest itself?Where does all the money go to afterwards? Would n't it be worthwhile keeping it circulating? Or does it not circulate like the blood /lymphatic system but sink through the like the digestive system?( It would be easy to check the VAT returns for evidence of monthly changes in the number of transactions.)
We all accept that money taken out of the system and hedged into land is money wasted that could better be spent by new households in buying stuff like furniture, fridges, carpets etc ,employing people.All Gesell did was extend his basic belief in Henry George to other things he thought slowed down the fastest possible circulatipon of money.It also worked: see Worgl on Wikipedia( Worgl is 30 nmiles from the Chiemsee.)
DBC: "How do you explain the surge of spending at Christmas?Does the GDP come out of hiding and manifest itself?"
Because people save/underconsume for 11 months of the year and dissave/overspend for 1 month of the year.
The "money" doesn't go anywhere, as "money" does not exist. What happens is for 11 months households run a surplus (which can be measured in £ terms, usually in the bank) and retailers/manufacturers run a deficit (i.e. their borrowings increase, which can be measured in £ terms, usually from the bank).
Then in Xmas month, this all reverses. The "money" (to the extent it exists) goes from household bank accounts into paying off retailer/manufacturers' overdrafts. Thus the total "money supply" increases for 11 months and then contracts sharply.
------------------------------
It's the same as my neighbour mowing my lawn every month for 11 months, which takes him half an hour each month, and I run up a "debt" with him.
I then repay this "debt" by doing a big favour for him over Xmas (like helping him decorate the whole of the front of his house with fairy lights), which takes us a whole day (i.e. five or six hours).
@MW
I am afraid we are in pretty deep amd murky water over velocity of circulation.The whole monetary/ credit supply question was investigated by Cyril Radcliffe reporting in 1957 (he was also i/c Indian Partition Boundaries and the future of British film industry).His report, which was hugely influential in the 60's has disappeared ( e.g.it is not on Net).However, you can get an idea of how it challenged quantity theory of money ideas from the hostile account of it in the Encyclopaedia of Money which enumerates the ways Radcliffe thought controls of money quantity would n't work:"The second factor hampering the effectiveness of regulated money stock growth was the velocity of ciculation.An increase in velocity has the same economic impact as a money stock increase and changes in velocity can effect changes to money stock growth ".(This is the E of M wording: their statement of what Radcliffe said).
Radcliffe won out> "The views expressed in the report became the economic orthoxy in the 1960's and treated as the accepted view in economic textbooks" E of M.
Monetarism as espoused by Thatcher appears to be a counter-revolution by quantity throw-backs (no trace of bias there).I would say portentously that the Economic History of the Post -war period has been the scene of a Q versus V debate.
Post a Comment