Thursday, 13 November 2014

Money

In searching for something else I came across this.

One sentence early on in the text caught my eye:

"Someone has to be responsible for making sure that there is enough money in existence to cover all the buying and selling that people want to engage in."

Erm, why?

16 comments:

Mark Wadsworth said...

haha one of the most stupid sentences ever.

It's another Economic Myth that money is a thing which actually exists and/or that there is a fixed amount of it.

Have we done that one yet?

James Higham said...

Someone has to make sure govt stays out of our business.

Bayard said...

Well, back in the days of metal money in the late C18th, there was a shortage of coin in the UK. This was overcome by merchants and cities issuing their own tokens, which became, to all intents and purposes, money. However, we've moved on from then.

Lola said...

B. Ahh you must have also read George Selgin's excellent book as well.

Ralph Musgrave said...

Mark asks why "Someone has to be responsible for making sure that there is enough money in existence to cover all the buying and selling that people want to engage in." Answer is that if there is not enough money, peoples’ ability to buy and sell is thwarted. Unemployment rises. David Hume actually noticed that effect over 200 years ago.

That gives rise to a secondary question, namely whether “making sure there is enough money” can be left to the market (i.e. private banks) or whether government organised money creation is needed as well. My answer to that is that it’s pretty obvious from the 1929 crash and the recent crisis that the free market money creation system is highly defective. Indeed, quite apart from the latter two major disturbances, it is widely accepted by economists that governments need to do a bit of money creation / withdrawal (e.g. via interest rate adjustment, QE, etc) so as to iron out fluctuations.

Personally I’d go further and ban all private money creation. Several economics Nobel laureates supported that idea, including Milton Friedman. A ban of that sort is called “full reserve” or “100% reserve” banking. There is a debate on that topic in the House of Commons on 20th November. See Positive Money’s site for more details.

Mark Wadsworth said...

RM please note.

1. I asked no such thing, Lola did.

2. You miss the point completely. Money is not a "thing" in itself, it is a unit of measurement, and what it measures is indebtedness.

If some "people's ability to buy... is thwarted" that's a PC way of saying that "they are poor" and if we want to do something about that, then that is a job for the tax/welfare system.

And the tax/welfare system also has to look at whether there are people who have too much "money" and take it off them (rent seekers, landowners, bankers) and give it out as welfare.

No need for fancy "money creation".

As to "banning private money creation" if you understand double entry book keeping you would know this is impossible.

The key to keeping banks down to size is:

1. Bank Asset Tax.

2. Land Value Tax. 80% of bank lending is on land, so if you keep the price of land down, the banks ability to "create money" goes down as well.

Lola said...

MW ...(re keeping banks down to size)...reform the current FRB model along the lines of Douglas Carswell's proposal.

This bit about 'doing something about the poor'. Overall I am very confident that the LVT / CI nexus will sort most of that. But the most successful ways of dealing with absolute (as opposed to relative) poverty are liberty and property rights. That is not inhibiting production.

I have increasingly come to think that we are not at all a 'consumer society'. We are in absolute fact a (very) producer (productive) society. The consumerist meme is used by authoritarians and prodnoses to justify layer upon layer of interventions.

mombers said...

There's an article related to this on ZeroHedge: http://www.zerohedge.com/news/2014-11-12/russell-napier-declares-november-16-2014-day-money-dies
The guy is proposing taking enormous numbers of banknotes out of a bank and storing them to avoid the chance of a haircut. In this case sure you'd need to physically print a lot more notes. But anyone with any sense would just buy a short term treasury note instead. I imagine everything else would lie in ruin before that got a haircut

DBC Reed said...

Try reading Martin Wolf's April 2014 article "Strip private banks of their power to create money" and Bof E bulletin "Money Creation in the Modern Economy" from about same time.
Wolf's LVT proposals are also better than most others.
The last thing LVT needs is elementary Economics mistakes and weirdo eccentricity.
I'm afraid if it came to a choice between Wolf/B0E and my friends on here ,it's you lot who would get the thumbs down for stubbornly sticking to a course out into Nowhereland.

Piotr Wasik said...

MW, what economy book would you recommend? Something that is used on actual university economy course, first year? I want to learn something so not a rant or "popular science", but actual textbook please.

Ralph Musgrave said...

Mark,

If money is a “measure of indebtedness”, who is indebted to who when gold coins are used as money? The answer is “no one”. And the same goes for all commodity monies.

Debt of course CAN BE USED as money, but it’s not the only form of money. Also the extent to which base money is form of debt is very debatable. E.g. £10 notes claim that the Bank of England will pay you on demand £10 (of gold presumably). But that’s an empty promise.

“If some "people's ability to buy... is thwarted" that's a PC way of saying that "they are poor". Nope. One can have a situation where everyone is well off (e.g. house and car owners) but if there was no money, their ability to trade with each other would be thwarted.

“No need for fancy "money creation"”. No? Then (as per above paragraph) if there was no money, we’d manage OK? A “no money” economy is a barter economy. That’s OK on desert islands, but not in Europe in 2014.

“As to "banning private money creation" if you understand double entry book keeping you would know this is impossible.” As regards whether I understand double entry book-keeping, I’ve got accountancy qualifications, so I think I pass that test. As to the idea that banning private money creation is not possible, several economics Nobel laureates think it’s possible.

To be more realistic, one can’t ban every last dollar of privately created money. Indeed there’s no need to. E.g. on implementing full reserve banking, I wouldn’t ban local currencies. But preventing 95% of the money creation currently carried out by high street banks is perfectly feasible.

Ralph Musgrave said...

Piotr Wasik,

Richard G.Lipsey produced a text book for 1st year uni students. I used that when doing A level economics many years go. Also John Sloman produced a similar book. But there are dozens of others.

Piotr Wasik said...

Thanks, Ralph

Bayard said...

"B. Ahh you must have also read George Selgin's excellent book as well."

No, I haven't. What's the title? A colleague produced a "Liverpool penny" one day, which he kept as a sort of talisman, which got me interested.

Mark Wadsworth said...

Piotr (in case you're still reading this), most economic textbooks are OK, all this supply and demand stuff is most helpful.

But what you must bear in mind is that most of them airbrush certain things out completely:
1. The fact that 'land' and 'capital' are two completely different things.
2. The fact that financial crises and land price bubbles go hand in hand, they are the same thing.
3. That 'money' is not a thing in itself, it is a unit of measurement, and what it measures is indebtedness.
4. As to taxation, they do the curves showing tax incidence and so on, all correct and proper, but none of them make it clear that the best kind of tax is one on pure monopolies such as land.

fraggle said...

"If money is a “measure of indebtedness”, who is indebted to who when gold coins are used as money? The answer is “no one”. And the same goes for all commodity monies."

Wrong. The extent to which a commodity is *used and treated as money* is the extent to which it is *no longer a commodity*. It's all about the reason why it is accepted in trade. An item or token is money when it accepted because of the expectation that others *in general* will accept it in trade. When someone accepts something as money rathen than as a commodity, then for them the transaction is not actually complete, because they haven't yet got what they actually want. What they have is a general claim on stuff. This claim is what money is a measure of and is equal and opposite to others' de facto obligation to give actual stuff for something that they do not want in and of itself, and it doesn't matter what that something is, nor what it *used* to be for.