... but while finite and given material is objective, finite and given resources is not. Its technology that defines one thing as an economic resource and another thing as not, and the available supply relative to the aggregate required to satisfy the ambitions of each ongoing enterprise and other collectives that defines an economic resource as either a limiting resource or a complementary resource, which are the focus of strategic transactions and routine transactions, respectively.

The fantasy that the "resourceness" of resources is fixed outside the economic system is another one of those plausible sounding but fallacious concepts that allows marginalist economists to assume away a set of questions that their conceptual toolkit is not equipped to address.


Utsukushikereba sore de ii

... in the reserve banking system with government fiat currency as the reserve asset.

When the fiscal authority makes a payment for goods or services, that also injects reserves into the monetary system, and when tax payments are made, that removes reserves from the monetary system.

Then, in one alternative, the central bank lends reserves to commercial banks openly, when and as demanded by commercial banks, which injects reserves into the system ... and when those loans are repaid those reserves are removed again.

In this case, the interest rate on that lending is the cost of funds to banks, and when they lend, their revenue comes from the margin between that cost of funds and the lending rates they set. Since most money in a reserve banking system is created by bank lending, the cost of funds to banks, in the context of a given set of lending opportunities, has a strong influence on the amount of purchasing power in the system.

In the second alternative, the central bank buys bonds to inject reserves into the banking system, and if it sells bonds, reserves are removed from the banking system.

In this second case, a bank that has excess reserves lends them overnight to a bank that is short of reserves, and the interest rate on those reserves is the bank's cost of funds. In that case, the central bank regulates the cost of funds when it regulates the total amount of reserves in the system by buying and selling bonds.

One complication in monetary policy comes from the BS that central banks spin as they are engages in managing monetary policy, and the BS that actors in the financial sector spin as they attempt to rationalize monetary policy stances that serve vested interests of the financial sector, but not the broader public interest. Since that conflict of interest is endemic to a reserve banking system, so is the smoke generated by the fairy tales told to rationalize away that conflict with the broader public interest.

The other main complication is that in a reserve banking system, money has to feel like it is intrinsically valuable in order to perform its four functions properly, but on the other hand, actually having intrinsic value interferes with playing those functions. People socialized in a society with a functioning reserve banking system therefore have a false intuition about money, feeling like it is a thing rather than a collective institution, and that false intuition lends substantial aid and comfort to the spinning of BS stories about monetary policy.


Utsukushikereba sore de ii