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most of the money was not real, but it was as real as existing money
Money is an information token backed by the institutions that allow it to function as a means of payment, store of value, standard of deferred payment, and unit of account.
And the large majority of money in our economies ... I say "our" because every member of the EU is a monetary production economy in the same sense that the United States is ... is produced as a side-effect of bank lending.
Now, sure, we can talk as if "money" consists of gold duckets (in old wooden chests) or copper cash (threaded on string through their hole in the center and tied up in bundles) ...
... but in the US and France and the UK, "money" is either a bearer note from the appropriate Reserve Bank or an entry in the credit side of some commercial bank somewhere.
In consideration of what money really is, and of the fact that all sorts of mischief along the lines of "natural rates" of this and that is likely to be done by pandering to the confusion that money really is "valuable stuff", rather than "information tokens of value so long as our financial system keeps working" ...
... then perhaps we need to find ways to express things that do not pander to common misconceptions about money.
And most especially on pieces on the Daily Kos, where there are ever so many people who are self- or other-described experts on the basis of being able to convincingly repeat neoclassical fairy tales about money and finance. Utsukushikereba sore de ii
perhaps we need to find ways to express things that do not pander to common misconceptions about money.
So in this case, instead of
In effect, he created a lot of money,
... and instead of
"However, most of the money was not backed by real wealth, but by financial fantasy." Utsukushikereba sore de ii
So I try to skirt around it. Does it weaken the overall point? In the long run, we're all dead. John Maynard Keynes
But I think the point can be made in language that directly reflects actual monetary institutions, even if it is not belaboring the point about what those institutions are.
That is, no, a diary cannot be written that is simultaneously about both this topic and the actual rules that govern modern monetary institutions ... because a diary can only coherently be about so much at one time ... but it can be written in the simple shorthands of the chartalist Banker's school rather than the simple shorthands of the quantity theory Treasury school. Utsukushikereba sore de ii
I have to disagree. You share a common misconception that Money is an object when it is in reality a relationship.
This Monetary Rationale by E C Riegel is IMHO definitive.
In particular this abbreviated summary
Breviate The purpose of money is to facilitate barter by splitting the transaction into two parts, the acceptor of money reserving the power to requisition value from any trader at any time. . The method of money is to employ a concept of value in terms of a value unit dissociated from any object. The monetary unit is any adopted value, which value is the basis relative to which other values may be expressed. The monetary system is a cooperative agreement among traders to regulate the issuance of monetary instruments, to express and exchange values in terms of the monetary unit, and to keep account of such exchanges. Monetary instruments may be any evidences of monetary transactions that serve the convenience of trade and the purpose of accountancy.
Breviate
The purpose of money is to facilitate barter by splitting the transaction into two parts, the acceptor of money reserving the power to requisition value from any trader at any time. .
The method of money is to employ a concept of value in terms of a value unit dissociated from any object.
The monetary unit is any adopted value, which value is the basis relative to which other values may be expressed.
The monetary system is a cooperative agreement among traders to regulate the issuance of monetary instruments, to express and exchange values in terms of the monetary unit, and to keep account of such exchanges.
Monetary instruments may be any evidences of monetary transactions that serve the convenience of trade and the purpose of accountancy.
Wherever a barter system - such as the Swiss WIR or proprietary systems like Bartercard - incorporates "time to pay" or credit, then the result is a monetary system requiring a "Value Unit".
So, while Credit may be Money (as it is when Money is bank-created Debt), it is normally only a necessary part of a monetary system.
Likewise, an abstract "Value Unit" is not Money any more than Credit is, but merely another necessary element of a monetary system.
Money is implicit in the system, and the agreement/documented relationship between the system participants.
In particular Money is not a "store of value": "Money's Worth" such as gold, may be a store of value, and in that role constitutes "Wealth" or "Capital".
Riegel speculated elsewhere - and I agree with him - that Money exists only in the instant of exchange ie it is "Dynamic Value". Everything else is "Capital" or "Potential Money" consisting either of obligations (accounts payable and receivable) or rights of ownership and use(Property). ie Capital may be characterised as "Static Value".
I believe that the analogy between Energy and Value is exact, and I regard Economics as the "Physics of Value".
And, indeed, this is surely not correct:
The purpose of money is to facilitate barter by splitting the transaction into two parts, the acceptor of money reserving the power to requisition value from any trader at any time
Money is first and foremost an institution, and as soon as we start talking about "the purpose" of an institution as a first principle, we are not talking about the empirical institution itself, but entering into the institution as participants and trading folkviews regarding the institution.
And when a work is so deeply entrenched in the monetarist fairy tale approach to the historiography of money as to say:
Civilization began with exchange, and exchange began with whole barter. Whole barter means the exchange of things for things, with each transaction complete in itself.
Civilization began with Cities, and Cities began with Big Men (priests, kings, whatever) redistributing taxes collected in kind. The first money were receipts that stood as proof of payment for those taxes.
And, yes, literally tokens, and yes, of course, obviously, with no value independent of the system of relationships where the information content of the token had meaning.
Barter is a fine thing to get luxuries and other status goods ... because, after all, if you fail to get the luxury or status good, it just means that the Joneses get ahead of you, when you would rather keep up with the Joneses.
However, for staples, reliance on barter would be insane. For staples, the problem of the dual coincidence of wants is not a minor annoyance that can be worked around for a century or decade while waiting for one of the items being bartered to emerge as the medium of exchange ... its a problem of, if nobody who has cereal grains wants what you have to offer, you starve then die.
Even worse is the following form of argument:
The total of 176 answers to the 22 questions showed such contradictions, inconsistencies and disagreements that we feel it a patriotic duty to state that there appears no understanding of the subject of money among the contributing authorities or among others whose writings we have studied.
Now, if you take several chartalist theories, of whatever quality, and several quantity theories, of whatever quality, and throw them into a mass, it is certain that that will be a mass of confusion and contradiction, because there are fundamental premises upon which the two groups of theory will disagree, and both groups cannot be simultaneously right.
But that can not be used to disprove the validity of each and every theory in the mass. Utsukushikereba sore de ii
ie a time delay between two "legs" of a barter exchange.
1/ I accept your IOU against value now.
That is the first "leg" of a split barter transaction.
2/ I then exchange your IOU for something of value from Migeru.
That is the second leg of the "split barter" transaction.
This all takes place within a "monetary system" which requires a "Value Unit" and a legal framework, and of course also some means of guaranteeing performance in respect of IOU's...
We currently achieve money/split barter by accepting Bank issued IOU's as "Value" (when in fact they are claims over Value or "anti-Value"), and in fact banks' economic function is as "guarantee providers".
These implicit Bank guarantees are not backed 100% by Value = "money's worth" (as yours and mine are - ours are ultimately backed by our earning power, or by something we "own"). They are actually backed by maybe 8% of "Value"= Capital which is an "in-house", or proprietary "default fund", the extent and nature of which is set by banking regulators - the BIS in Basel.
I don't think Banks as credit intermediaries are either necessary (the internet allows us to bypass them) or sustainable (compound interest on money created as debt is mathematically unsustainable).
If we can back a mutual guarantee with a provision into a mutually owned (held by a "custodian") "default fund" the result is Banking without the Bank as credit intermediary.
But that will actually be great for the Bank because, in this model, a bank operates without putting its capital at risk. It is now a pure service provider managing the creation of credit by setting "guarantee limits", rather than "credit limits", and also handling the necessary accounting system and "default fund" held by the Custodian.
