What Is This Money Thing Anyway?

By Sell on News, a global macro equities analyst. Cross-posted from Macrobusiness.

One of the consequences of economics pretending to be a science, when it is not, is the tendency to attempt to explain financial behaviour from its base constituent parts, rather as a physicist might build up a picture of a compound from its molecules. This repeatedly results in observations that are either banal or based on circular arguments. And once those observations are generalised, taken beyond their thought experiment circularity, they become consistently misleading.

There was an example of this in an article in The Economist that discusses the origin of money, or specie. Money, we are told, is “perhaps the most basic building block in economics”. Well, yes. Painters use paint, too. But money, unlike paint, is a little harder to define:

“It is clear what it does, but its origins are a mystery. Some argue that money has its roots in the power of the state. Others claim the origin of money is a purely private matter: it would exist even if governments did not. This debate is long-running but it informs some of the most pressing monetary questions of today. Money fulfils three main functions. First, it must be a medium of exchange, easily traded for goods and services. Second, it must be a store of value, so that it can be saved and used for consumption in the future. Third, it must be a unit of account, a useful measuring-stick. Lots of things can do these jobs. Tea, salt and cattle have all been used as money. In Britain’s prisons, inmates currently favour shower-gel capsules or rosary beads.”

It is interesting how this argument develops. There is no real definition of what it is other than it is a “mystery”, then we return to what money does, its functions. As Nobel laureate Sir James Mirrlees  commented, traditional economic theory has no explanation for the existence of money. Not a small gap, to say the least. Then the article goes on to look at historical types of money, including barter at which point it has safely departed from any relevance to the meta money world that has developed in the global capital markets.

Taking a building block approach, in other words, gets pretty much nowhere. The quasi-science defeats itself readily enough.

Money, it seems to me, is rules. Rules about value and obligation. The rules can be enforced or overseen by government or they can be loosely enforced through private self organisation. The opposing arguments about money being from the state or private sources is really a non-argument. They are just different kinds of rules. What we are seeing in the global capital market is the shifting of the rule making away from governments and towards private actors, but both are typically involved. It is just that the balance over the last decade has been skewed towards traders, leaving governments to fix the mess when it all inevitably went wrong.

The article also makes the mistake of looking at money as a tangible thing, which is a blind alley. Rules are intangible:

“But the story just doesn’t match the facts in most monetary economies, according to a 1998 paper** by Charles Goodhart of the London School of Economics. Take the widespread use of precious metals as money. A Mengerian would say that this happens because metals are durable, divisible and portable: that makes them an ideal medium of exchange. But it is incredibly hard to value raw metals, Mr Goodhart argued, so the cost of using them in trade is high. It is much easier to assess the value of a bag of salt or a cow than a lump of metal. Raw metals fail Menger’s own saleableness test.

This problem explains why metal money has circulated not in lumps but as coins, with a regulated amount of metal in each coin. But history shows that minting developed not as a private-sector attempt to minimise the costs of trading, but as a government operation. It was state intervention, not the private market, that made metal specie work as money. “

I would say that the physical version of money — and almost all money these days is blips on a computer screen, almost none physical coinage — was developed to be a store of rules (and only secondarily a store of value).

Whatever, the building block approach to understanding money is arid. It ends up only telling us what money does, not what it is. A much better approach is, having defined money as rules, to then ask how human beings create, and are affected by, the rules. An excellent starting point for that is the anthropologist George Simmel, who links it with the rise of individuality. Money allows an individual to define his or herself:

“Money furthers differentiation not only as a by product of of differentiation in society but within the individual directly. It does this by providing an effective means of distinguising between the subjective centre and the objective achievement of a person. The individual’s performance may be paid for while the person remains outside the transaction..”

But Simmel says the individualising power of money has another side. Group membership can either enhance or reduce individuality: investment bankers are all alike except for the differences in their bank balances. And it has an effect on how we conceive others:

“Such power is achieved at the cost of de-individualizing other beings whom one tends to evaluate in monetary terms. Here we confront the Neitzschean belief that there is a world economy of individuality, with the result that its increase in the few takes place at the expense of the depersonalised many.”

It is worth remembering, especially at a time when neo-liberal ideas of the worth of the individual and limitless virtues of markets abound, that the word “individual” once had the opposite meaning: “indivisible from”. That reflects the ambiguity, even paradox, of the idea. One is reminded of the Monty Python film Life of Brian:

Brian: You are all individuals

Crowd: We are all individuals

Some guy: I’m not.

Money is rules, and the patterns of individuality and co-operation or colectivism are revealed in relation to those rules. The question should be in this current bizarre world of meta-money: “What rules are good and what rules are either bad or dangerous?”

The answer will be found in looking at the balance between individual rights and freedoms and the collective good.

* * *

Lambert here: Well, gosh, I don’t know. Smarter people than me: “Money is power”; “Money, then, is credit and nothing but credit.” Then again, “money is rules” appeals to me, because it makes money seem subject to the taboos (rules) that fetishes are subject too. Readers? How do you answer Sell on New’s question, do you agree or disagree with Sell on News, and if so, why? Here’s another question: Are different forms of money appropriate to different constitutional orders? That is, would a city-state like Florence or Athens necessarily have different forms of money from an empire like Rome or the United States? Let’s have a good clean fight here….

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About Lambert Strether

Lambert Strether has been blogging, managing online communities, and doing system administration 24/7 since 2003, in Drupal and WordPress. Besides political economy and the political scene, he blogs about rhetoric, software engineering, permaculture, history, literature, local politics, international travel, food, and fixing stuff around the house. The nom de plume “Lambert Strether” comes from Henry James’s The Ambassadors: “Live all you can. It’s a mistake not to.” You can follow him on Twitter at @lambertstrether. http://www.correntewire.com


  1. indeed

    Only a self-important blogger/pundit/columnist would take a single article, from The Economist magazine no less, and use it to damn an entire discipline and profession. The Economist does not represent economists.

    I do wish you’d stop republishing Macrobusiness stuff. It just makes the internet that little bit dumber.

    Worrying about the deep philosophical basis of what money “is” usually goes the way of crankdom in short order. It’s all about rules of the game, either imposed by the state or agreed by the participants, does it really matter which?

    Go read some Alan Kirman about market rules and how they are formed. Go read some of the market microstructure literature. Understand that many of the rules of financial markets were set up by industry associations or infrastructure providers (stock exchanges) and not directly by government.

    1. Mark P.

      I agree this is a post of limited worth. But if it’s “all about the rules of the game, either imposed by the state or agreed by the participants,” it clearly matters a great deal who gets to impose their set of rules.

    2. craazyman

      too quick to dismiss. alhtough the post is sort of foggy.

      why do people with lots of money get reverered? why do people with lots of possessions get revered? but it depends on kinds of possessions. if they possess a big pile of dead houseflies, they may be considered very odd, but not revered.

      maybe they’d be put in a mental institution if the pile was big enough. but a big pile of gold coins (a BIG pile) and they are revered, if the have goood sense tokeep the pile safe in a well gaurded place.

      why did people in far away lands put big bones through their lips? to get revered as big dudes. why? if you’re a big dude fewere people f-ck with you and manybe God thinks you’re worth tossing a few bones too, no pun intended. why the Vatican so rich when Jesus said give yur money to the poor? Jesus didn’t need money to make loaves and fishes or to heal the sick.

      deepie thoughts. LOL. too early for such complicatedness.

      1. Procopius

        Why do people revere those with a lot of money? I think everyone here needs to read Thorstein Veblen’s “Theory of the Liesure Class.” Or Jamie Galbraith’s “Predator State,” which briefly describes Veblen’s reasoning. Veblen points out that the wealthy class are the predators who regard success from “exploits” rather than productive labor superior and “work” is the mark of inferior beings. It’s all about marks of status. The desire to distinguish oneself and receive adulation is insatiable, so economic analysis that says the marginal dollar has less utility is wrong — every single additional dollar is as important as the first. Reminds me of a story about Howard Hughes, who was asked in an interview what he wanted, and supposedly said, “Just one more dollar.”

    3. par4

      A discipline and a profession? Is that a joke? “It is difficult to make a man understand something,when his salary depends on his not understanding it.” (Upton Sinclair)

      1. jake chase

        While economists do not understand money, two types of people understand it perfectly: those who have more than enough and those who cannot get their hands on enough. Money is power over those without it. Big shots have manifold ways to increase their share: dominate markets, borrow from banks, wheedle from governments, con consumers, etc. What matters is the distribution of money, which has been increasingly skewed since the reign of Reagan, the ultimate PR man for the 1%. What almost nobody seems to understand is that money is more political than economic. The rich are smart enough to worry about politics and ignore economics. Economists are either hack public relations men hiding behind arid mathematics or cranks to be drowned out, starved out and consigned to oblivion. The only honestly objective economists in history were Marx, Veblen and Henry George. All of them ended up without a pot. The charlatans got Nobel Prizes, endowed professorships, etc.

        1. Antifa

          If money is rules, it’s only because people trust that those rules will be followed, or can be enforced if broken.
          Therefore money is at its core trust between people.

          If money is power, it is because having it lets you control assets and people, lets you make and enforce the rules. Not having any money prevents your doing so, makes you a victim.
          So again, money is rules is trust — trust that if I don’t pay your bill my kneecaps will be broken, my house taken, my crop seized.

          Historically, money began as credit before it was ever coin. Before there was wampum to count there was the doing of favors and the owing of favors between people. I share my meat and bread with other families, and they owe me the same favor in return. I help with my neighbor’s plowing or barn-raising, and can expect the same help in return. Trust is the root of these rules, these credit arrangements.

          So money is credit is rules is at its core trust between people. Money, credit, rules without trust is nothing at all.

          We now live in a nation where trust is shattered. Trust is for suckers. Money is a means of breaking every rule. Credit is a means of stealing people’s possessions and livelihoods and health. Rules are for the little people, not the rich. Nothing is enforced for the very rich. Nothing.

          It’s not that a society without trust cannot stand for long. It’s that there is no society TO stand. It’s all been hollowed out from the inside. It’s just a shell of what once was, filled with looters and thieves getting everything they can while they can.

          The revolution is here, folks. Wall Street started it, and Wall Street is running with it, no holds barred.

          Who’s gonna stop them? You?

          1. Flxible Driver

            Yes, money is rules. Right now the “computer blips” of one hour of Mr. Romney’s compensation at Bain Capital are equal to the “computer blips” of 4 months of my compensation stocking shelves at Staples. 99% of people can see that these values are equivalent only if Mr. Romney makes the rules. Money can only work if it is accepted as a claim on production. And production is not “computer blips” on a screen. It is making or doing something which people can use. Managing this production has value. But in a world of Romney rules, the value has inflated into pure fantasy. How long can this go on? My guess is not much longer.

          2. merijnknibbe

            Wampums were not used as money by the native americans. For them they were personalized tokens of value and symbolic memories, like our olympic medals, crown jewels, wedding rings and the like. The European settlers however used them as money.

    4. Susan the other

      But we had that post yesterday about HFTs which are nothing more than high speed money, a new form of money. “Meta money” as this guy calls it. And it can clean us all out.

    5. Steven

      IIn order to devise a workable set of rules covering the creation and use of money, you have to a basic agreement about ‘what money “is”’, though indeed is correct in being deeply suspicious of a discussion couched in terms of money’s “deep philosophical basis”. As joebhed the Nobel Prize-winning chemist Frederick Soddy furnishes by far the best definition of money, one rooted solidly in the material world – not in obscure philosophical terms bordering on “crankdom”.

      Soddy’s “Wealth, Virtual Wealth and Debt” (be sure to get the 2nd edition if you can find it) is a tough slog reading-wise – but well worth the effort. The short version is “money IS debt, not wealth”. It is the legally or socially mandated ‘Nothing’ you must have in order to acquire the ‘Something’ of real wealth. Soddy believed the creation of money simultaneously involved the creation of a social debt to its holder to supply wealth equivalent in ‘value’ to the wealth the holder of money (presumably) gave up to acquire it.

      Two logical and very practical, down to earth conclusions flow from that observation:
      1- sense the creation of money inherently involves the creation of a social debt, society and not private parties should benefit from its creation;
      2- no more money should be created than wealth or potential wealth for that money to buy.

      Once you get on to the idea that money IS debt it explains a whole bunch, e.g. financial engineering is nothing more than rearranging the income stream from a wealth-producing activity in such a manner as to be able to siphon off as much as legally possible.

      Read Soddy! He is well worth it!
      n order to devise a workable set of

    6. MRW

      “Understand that many of the rules of financial markets were set up by industry associations or infrastructure providers (stock exchanges) and not directly by government.”

      So? They go crying to the government for repair when the rules dont suffice or work out.

  2. Jose Guilherme

    I agree that this post doesn’t add much value.

    And btw the Economist article is very good with a correct emphasis on the 1998 (chartalist) Goodhart paper. Just click on the link provided in the post – it’s the most useful part of it.

  3. JGordon

    I have been thinking about this post for a while now and I have a good answer. A few years ago the Alabama state legislature passed a bill to legally changing the value of pi to 3.

    Now on the face of it that seems kind of absurd, but not so much when you think about “money”. Central bankers act as an all-powerful legislative body when it comes to determining the value of money. They have a religious/ideological system called “economics” that tells them what the proper value of money should be to meet certain ends, and they constantly strive to achieve that value by fiat edict.

    And that’s what money is: the rules that govern economic interaction in a market economy, that are constantly being tinkered with by ideologues, political elites, and sociopaths. And of course it goes without saying that the money system will collapse soon.

    1. Gerard Pierce

      I remember the story about the action of the legislature. I also remember a later story that may or may not be true. In this version, the author of the pi legislation was ending his political career and introduced this bill as a way of demonstrating what a pack of idiots his colleagues were.

    2. craazyman

      that’s pretty good!

      It’s a lot simpler than a bill reducing the circumference of all circles by 4.507035555%.

      Who said government can’t be efficient?

    3. F. Beard

      PI DOES equal 3 – to one significant digit.
      PI equals 3.1 – to two significant digits.
      PI equals 3.14 – to three significant digits.
      PI equals 3.141 – to four significant digits.
      and so on …

      But since the Bible did not list an infinite number of significant digits for PI, it is obviously false and should be ignored?

      1. H. Alexander Ivey

        F Beard, pi is 3 to one significant digit, that is funny! Dang, now I’ll have to start reading your comments…

  4. Hugh

    Money is a medium which allows access to society’s resources. There is no reason to make this needlessly complicated.

    1. Lambert Strether Post author

      So, a fourth definition. Cool.

      * * *

      The reason I like “money as rules,” as I said, is that it connected to the idea of taboo and fetish, hence to the boundaries between I and Not-I, hence to excrement, and so forth.

    2. LucyLulu

      Hugh wrote: “Money is a medium which allows access to society’s resources. There is no reason to make this needlessly complicated.”

      Well said, Hugh. Defining money as a medium of exchange works, too.

      To say “money is rules” is more than needlessly complicated, it’s inaccurate. Money HAS rules that govern its use, i.e. rules are a property of money. Defining an object by a single property is at best imprecise. No wonder economists aren’t considered scientists. While the behavior of both are governed by rules, what scientist would say that an “‘atom’ or ‘a pack of dogs’ IS rules”? Language matters when constructing definitions. This article is silly.

    3. LucyLulu

      It’s interesting to look at legal definitions because attorneys take great care to make precise definitions and use accurate descriptions. Ambiguities and vagueness can become costly mistakes for an attorney’s clients. It’s also important because it is our laws and statutes which comprise the rules that govern the use of money in our society (or supposed to), and those laws are based upon the acceptance of legal definitions. The widely accepted law dictionary is Black’s Law. It is oft cited as a legal reference by SCOTUS, first published 1891. It defines money as follows:

      “Money: In usual and ordinary acceptation it means coins and paper currency used as circulating medium of exchange, and does not embrace notes, bonds, evidences of debt, or other personal or real estate.” Page 1005.

      Note that ‘notes’ such as federal reserve notes we carry as dollar bills are not included in the definition of money. They fall under the definition of “currency”, which is the “current money” of a government. US currency is “legal tender” for the payment of debts in the U.S., however ‘currency’ appears to have a more context specific definition than ‘money’. In N.Korea, your dollar currency may be deemed worthless. While the definitions found in Black’s Law Dictionary fail if applied to an Amazon tribe that uses dried beans as money, it works for those societies which have developed the formal legal structures that require such a definition.

      “Currency: Coined money and such bank notes or other paper money as are authorized by law and do in fact circulate from hand to hand as the medium of exchange.” Page 382.

      “Current Money: The currency of the country; whatever is intended to and does actually circulate as currency; every species of coin or currency. It is employed to describe money which passes from hand to hand, person to person, and circulates through the community, and is generally received. Money is current which is received as money in the common business transactions, and is the common medium in barter and trade.” Page 383.

      “Legal Tender: All coins and currencies of the United States (including Federal Reserve notes and circulating notes of Federal Reserve banks and national banking associations), regardless of when coined or issued, are legal tender for all debts, public and private, public charges, taxes, duties, and dues.” 31 U.S.C.A. § 392.

      That being said, and any attorneys please correct me if I’m wrong (no law degree here), it seems that “money” is used sparingly in the law profession, instead more commonly replaced by phrases such as “exchange of value”.

      1. alex

        “attorneys take great care to make precise definitions and use accurate descriptions”

        So sayeth attorneys, but do you believe everything you hear? Mathematicians, hard scientists and even we lowly engineers laugh at what attorneys call precise definitions. “On or about”, “reasonable doubt” and a thousand other legal phrases are about as precise as shapes in a manure pile. Now, when dealing with human interactions it may be a practical impossibility to precisely define things, but what annoys me is the pretense that they do.

        “it seems that “money” is used sparingly in the law profession”

        So what? Attorneys get the define the legal definition of money, which like many legal definitions may bear little resemblance to the everyday use of the term. Similarly economists get to to create their own definition of money, which again may bear little resemblance to the everyday use of the term. So what, this is done all the time in various fields. Sometimes it’s done as a silly game, but often it’s done simply because various fields need somewhat different definitions of various terms that are used imprecisely in everyday language. Lawyers have no monopoly on this.

    4. Lidia

      Why do you say money “allows access” to the earth’s resources?

      You might better say that it RESTRICTS access to resources.

      It only “allows” access in a controlled man-made and corruptible context, and in fact the “allows” means there is some authority figure or entity which does the allowing.

      Hence, Donald Trump can be in debt for a billion dollars and no one bats an eye, but if a homeless guy takes a candy bar, we throw him in jail. That’s what the concept of money ALLOWS for.

  5. Gerard Pierce

    The problem with these varying definitions of money is that they are all correct, but there is a lot more to money than its role as a medium of exchange.

    An automobile is a means of transportation. It is also a symbol of the owners status in society. Most of the time, status is more important than transportation.

    I have an blog/essay that I have re-written a few times over the years titled “The Big Chicken Gets the Corn”. Hopefully you can’t find it because the early versions were not that well thought out.

    This post is not completely thought out, so you will have to fill in the blanks yourself.

    My current in-progress version connects money and what is usually reviled as “greed”. The very word mostly misses the point (and missing the point is socially useful).

    Most of what is called greed is really status-seeking behavior. The term status-seeking doesn’t communicate that much unless you make an assumption that seeking higher status is an in-bred biological function that is a lot more powerful and important than we realize.

    Vance Packard’s “The Status Seekers” described the behavior, but, as I remember, it didn’t completely deal with the idea that we are dealing with a built-in behavior. The book also fails to describe just how powerful “status” really is.

    You can only sleep in one house at a time, and you can only eat so many meals a day – so why continue to chase money.

    As a medium of exchange, money doesn’t explain “greed”. As a medium of social status, money becomes all important – when it’s driven by a biological urge to be the Big Chicken.

      1. Bev

        Money has to be able to solve problems like fixing Fukushima or it is worthless. And, we will end badly.

        Money as Debt paid to bankers cripples us and disallows solving problems even when so important it could mean survival or extinction itself.

        Money when Debt Free, Interest Free allows us to save ourselves and our societies.



        What are these broad national parameters supported by over 3000 years of history? That the control of the money system must shift away from private control toward governmental control. Away from commodity money notions; away from fractional reserve banking – using debt for money. Towards money issued interest free by government and spent into circulation for the common good. All serious reformers understand that we must replace our private credit system with a government money system, ending what is known as fractional reserve banking. Anything less should be viewed as a diversion, at this critical time.

      2. Bev

        Greed, power or sociopathy.

        The following is Darryl Schoon’s article, and it is brave and good. It will need to be reviewed by historians, professors, but, may provide the motive to so much gone wrong in our country’s recent history–starting with money.


        Excerpt from Light In A Dark Place, 2nd ed. 2012)

        9/11 & Gold, Money and Power

        With the rise of central banking, gold as money began a three century decline. Gold as power, however, continued on as usual.

        In 1971, when the US cut the ties between money and gold, gold as money ceased to exist. Gold as power, however, continued. But because gold is power there is little real information on the connection between the two; and that information is often misleading as the powerful prefer secrecy and the true movements of gold are no exception.


        .. a vast international criminal conspiracy at the heart of the American government … [beginning] with the criminal prosecution of former Reagan intelligence coordinator, Lee Wanta…Charges allege that the 9/11 attacks were planned and executed in order to cover financial crimes.


        Darryl Robert Schoon





        1. F. Beard

          But because gold is power there is little real information on the connection between the two; and that information is often misleading as the powerful prefer secrecy and the true movements of gold are no exception. via Bev

          Oh come on, Bev!

          Are you going to accept such obvious propaganda from a site called news.goldseek.com?!

          Have you gone bonkers?

          Gold is just a shiny metal that the bankers and other usurers have used to cheat people over the centuries. And if we are so stupid as to worship shiny metals and say such stupid things as “gold is power” then we deserve to be punished for our idolatry.

          1. Bev

            As you well know, I prefer Debt Free, Interest Free money such as the Greenback. It is why I keep posting http://www.monetary.org/2012-conference

            The Greenback was backed by precious metals historically. Kennedy’s Silver Certificate was backed by silver.

            A nation’s money could also be backed by infrastructure that it would pay for as Byron Dale suggests.

            Gold and Fiat can be Debt Money Loans paid to bankers.

            Or, Gold and/or Fiat can be Debt Free, Interest Free Public/Government Money spent to help society at large, which would allow the fixing of Fukushima…without Debt.

            If governments never do the right thing, it is not foolish to collect PM coins as Money.

            But, I prefer the stability to society of a Debt Free, Interest Free money. And, the solving of our problems with the same.

          2. F. Beard

            Or, Gold and/or Fiat can be Debt Free, Interest Free Public/Government Money … Bev

            Wrong! Unless the government owns a infinite amount of gold then it will eventually have buy or borrow gold (at interest) to create government money. If it buys gold then that is a waste of government purchasing power and if it borrows gold then that is a waste of purchasing power too.

            Yep. You’ve gone bonkers.

            As for Greenbacks, yes they were redeemed for gold but they need not have been. The taxation authority and power of government is more than enough to back fiat. If the government had some spare gold lying around and price inflation is a problem in its fiat then it might make sense to retire some fiat with gold in order to reduce that price inflation.

            Gold is a non-performing asset so it makes sense that government might sell it as opposed to real assets like land, roadways, etc. that should NEVER be sold (though leasing them might make sense).

          3. Bev

            Excuse me…

            911 was bonkers.

            Excerpt from Light In A Dark Place, 2nd ed. 2012)

            9/11 & Gold, Money and Power

            Darryl Robert Schoon

            With the rise of central banking, gold as money began a three century decline. Gold as power, however, continued on as usual.

            In 1971, when the US cut the ties between money and gold, gold as money ceased to exist. Gold as power, however, continued. But because gold is power there is little real information on the connection between the two; and that information is often misleading as the powerful prefer secrecy and the true movements of gold are no exception.


            .. a vast international criminal conspiracy at the heart of the American government … [beginning] with the criminal prosecution of former Reagan intelligence coordinator, Lee Wanta…Charges allege that the 9/11 attacks were planned and executed in order to cover financial crimes.


            Darryl Robert Schoon

            pdf of article:




          4. Bev

            I forgot to mention that money does not have to be backed by anything in order to work so long as the quantity is controlled.

            And, so long as it is not DEBT. No Debt money is much, much better for people, business and society. More stable, more humane.

          5. Bev

            Try again the site of a real reporter:

            Lies Bushco Told About 911
            by Len Hart, The Existentialist Cowboy


            Also see:

            AA Exposes Bush’s ‘Big Lie’: Flight 11 DID NOT FLY on 911!
            by Len Hart, The Existentialist Cowboy



            As earlier attempts for a few weeks may have been often highjacked by a site called “Web Ring.” Try again, he is worth it.

  6. joebhed

    Thanks, Lambert for this effort.

    Of course I am pleased that you maintain the legal notion of modern money against the ingrained modern monetary THEORY that finds the nature of money in Innis’ proclamation that money is credit; therefore, money MUST BE DEBT.

    May I suggest for consideration that money not only MUST BE correctly a set of rules and standards “and of weights and measures”, but also that it MUST function as needs arise within the population of the living national entity that creates the law, the rules, the measures and standards.

    Yes, money is whatever we determine it to be.

    While many recognize the modern evolution of the ‘monetary’ science from the works of Fisher to Friedman, Tobin and Wray in the last century, it is the work of Dr. Frederick Soddy that best informs on what money needs to be in order to provide for the most ‘democratic’ distribution of national wealth.

    Soddy defines money as a socially-constructed ‘distributive’ vehicle for national wealth in his lectures on Cartesian Economics, and explains how best to utilize that distributive power in his very brief book titled “The Role of Money” –

    For those of us suffering today the mal-distribution of the national wealth due to the centralization of the money-power, the answer to what this money thing is remains to be determined.

    For the Money System Common

  7. Vicky

    The worst “rule” of money is that value is fixed solely to markets,and does not include any basic value assigned to each person. Tom Paine (via John Locke) pointed out that in the past, families, groups and individuals had a natural ability to produce food and shelter for their families, through their own labor. The loss of this fundamental capacity to capitalism, in his opinion, should be balanced by a base payment to each person by the government. So your “self” would essentially be a bank that pays itself the currency needed to provide basic food and shelter for you and your dependents. That “rule” would balance out the concentration of economic power in capital.

  8. MacCruiskeen

    “Money, it seems to me, is rules. Rules about value and obligation. The rules can be enforced or overseen by government or they can be loosely enforced through private self organisation.”

    Isn’t this just another way of stating what should be fairly obvious–that money is a social construct. Human societies invented it, it doesn’t occur in nature. It’s not a thing you find lying around, or a natural force. Money can be represented by whatever we want to use, and can be (and is today) stripped down to purely its base informational content. This notion of money as pure information seems to bug some people, but there it is.

  9. Moke

    Money is a unit of measure. As such, its value is relative. Its usefulness, regardless whether it is gold coin or paper money, is nil to most people such that the objects primary purpose is to conduct transactions. Gold coins were weighed by a trusted authority and stamped to convey trust that the weight indicated is accurate to facilitate transactions where scales were not available. If the authority couldn’t be trusted or trust was unknown then a reasonable person would either discount its value or not accept it.

    In a hypothetical world, lets say each merchant issues their own paper curreny. Mary owns an ice cream shop. She issues Mary Bucks redeemable for one ice cream cone. She needs a manicure and agrees with the shop owner Suzy to pay for the manicure with one Mary Buck.

    Couple things happen here; Suzy knows Mary and trusts Mary to make good on the value of her currency (redeemable for 1 ice cream cone). Secondly, Suzy and Mary agrees that the value of her manicure is worth 1 ice cream cone (unit of measure on the basis of 1 ice cream cone). Suzy agree’s but instead of redeeming the Mary Buck herself she uses it as part of another transaction with a local tavern owner. Tavern owner must have a level of trust in Mary’s currency in order to facilitate his transaction with Suzy. This cycle ends when eventually someone redeems the Mary Buck for an ice cream cone at Mary’s shop. From an accounting perspective, all accounts are settled.

    Now what happens when someone decrees that Mary’s ice cream is so good that everyone should experience the enjoyment of this tasty treat. It’s in the interest of the common good, you live life once and its a shame not to experience this “cone from heaven”.

    The government or private issuer starts counterfeiting Mary Bucks and distributes them.

    Now Mary has a line of people outside her door wanting ice cream, and she working 16 hours a day seven days a week to keep up with the demand. Society is happy, everyone now gets Mary’s ice cream but she’s exhausted and can’t keep up the pace. One day she realizes, I went for one manicure and for some reason there’s thousands of people wanting ice cream. She either closes shop (currency worthless, no store of value) because she can’t keep up the pace or realizes someone screwed her by couterfeiting her currency and raises the price of her cones to 10 Mary Bucks.

    Now if Suzy had instead held onto her Mary Buck then she gets screwed because she worked to provide Mary a manicure and is left holding onto something worth a teaspoon of ice cream.

    Currency should be based on real economic activity and not counterfeit.

    1. RepubAnon

      Back in the 1980s, a number of people had the clever idea of replacing money with “barter tokens” – the idea apparently being that one could evade income taxes because one was merely making exchanges of equal value, thus no profit or loss occurred.

      The schemes lost popularity when the government decided that barter tokens were (obviously) a form of money, and imposed taxes anyway.

      In short, money is basically a set of rules under which our system of barter for goods and services operates. Most of the rules involve ways to make sure that the money’s value remains relatively stable in relation to the various goods and services for which it can be exchanged.

      If one loses faith in the relative value of the barter tokens/currency, it creates pressure to exchange one’s holdings to something viewed as having a more stable value, such as gold, diamonds, spices – or 9mm pistol ammunition. (In a dystopian Mad Max-type world, I expect that ammunition would be more highly valued than gold)

      1. Moke

        Money is an abstraction. It can be anything; gold, paper, seashells, tobacco, reeds, beads, clay tablets, or in your Mad Max world (smile) ammo.

        From your example, the government taxed the transactions based on tokens because they didn’t want a market to exist that they don’t have direct control over.

        Governments directly create markets by enforcing legal tender to discharge taxes. This way they can direct the general population towards their agenda without having to directly tell them what to do. You’re free to follow your individual interests as long as your activity directly or indirectly serves the purposes of the State. A market in the 1980’s based on tokens violates that and needed to be terminated before it got any larger.

    2. joebhed

      “Money is a unit of measure.”

      Isn’t it more accurate to say that the national currency unit – $US in my case – is the unit of measure of all economic goods?
      And isn’t ‘Money’ itself an abstract legal construct established by a nation of sovereign people?

      I think the bigger question remaining off-screen here is – what is a monetary system?.

      If we can begin to think in clear terms about what a monetary system is, and how it needs to operate to serve the people that created it, then we might get somewhere.

      1. Moke

        “…is the unit of measure of all economic goods?” Absolutely

        “…an abstract legal construct established by a nation of sovereign people?”

        For the US dollar, it is a legal construct that the people of the United States recognize as a medium of exchange.

        Most people I know don’t have the foggiest notion of money or credit. It’s taken as an unquestioned given, without a moments thought. Your notion that a nation created this implies that they made a conscious willful decision but in reality it was a select group of wealthy individuals that decided the formation of our monetary system. I don’t see how the broader population understood its implications.

        As for the monetary system we need to question whom does it serve and whom should it serve.

        I think the larger question is what is the role of the market, if any, in regards to human existence and who should set its rules and who should it serve. And to what degree should we be allowed to organize our own markets for our own purposes.

        1. joebhed

          How any nation of sovereign people decide anything is dependent upon their political structure.
          In this country it was the direct obstruction of the Colonies to have any monetary autonomy that led to having our national revolution.
          This was probably the first country ever birthed in an effort to achieve monetary independnence.
          For the most part Colonial currencies were issued either debt=free or interest free, and this was what allowed their prosperity.
          That prosperity was a threat to the British, who acted to make the Colonial monies illegal for certain purposes.
          The movement for monetary independence that led to a new nation, that of a new sovereign peopoles, was az widely supported as anything could be.

  10. David

    I found the post to be rambling with little connection to the role of money as it is used today. Money is a ‘thing’ which is used by the federal government to purchase goods and services and which private parties use to pay taxes and also for the private exchanges of goods and services (MMT). The federal government defines the rules of exchange and maintains the monetary system. The social classes which run the federal government define the roles and rules of money. The fundamental belief of the elites that private markets provide the most efficient allocation of goods, and therefore the fair allocation of goods has created the system of rules and social organization of today. In our almost fully financialized society money and the rules of money define an individual’s ability to participate. We see it today in the debates around voting with the idea that those individuals that receive directfinancial assistance from the state should not be allowed to vote. There are no roles for citizens only for those who are profiting from our current social organization.

  11. kevinearick

    money is a feedback transmission mechanism, which the empire desperately wants to control, to its own end, so it employs its resorces to define its value perception so, naturally, the more control it exerts, the farther out of control it gets, in a positive feedback loop. if participants agree to define themselves by money, and their collective overwhelms non-participants, who is left standing at the end of the silly game?

    what is electricity? how dou define an electron? what did Tesla do to get the collective so angry? Jesus?

  12. Tao Jonesing

    Fascinating article, Lambert. Thanks for sharing.

    I enjoy the comments even more. The article appears to be a kind of Rorschach test.

  13. stick

    It seems odd to me that folk can be so dismissive of a discussion on the nature of money. How in the world can we build a more rational and equitable system out of the social world we currently inhabit without understanding even the most basic components of the system.

    Seeing the money form as a set of rules is an informative way of thinking about it, and old Marx talks about this very thing in the Grundrisse:

    “This reciprocal dependence is expressed in the constant necessity for exchange, and in exchange value as the all-sided mediation. The economists express this as follows: Each pursues his private interest and only his private interest; and thereby serves the private interests of all, the general interest, without willing or knowing it. The real point is not that each individual’s pursuit of his private interest promotes the totality of private interests, the general interest. One could just as well deduce from this abstract phrase that each individual reciprocally blocks the assertion of the others’ interests, so that, instead of a general affirmation this war of all against all produces a general negation. The point is rather that private interest is itself already a socially determined interest, which can be achieved only within the conditions laid down by society and with the means provided by society; hence it is bound to the reproduction of these conditions and means. It is the interest of private persons; but its content, as well as the form and means of its realization, is given by social conditions independent of all.

    The reciprocal and all-sided dependence of individuals who are indifferent to one another forms their social connection. This social bond is expressed in exchange value, by means of which alone each individual’s own activity or his product becomes an activity and a product for him; he must produce a general product – exchange value, or, the latter isolated for itself and individualized, money. On the other side, the power which each individual exercises over the activity of others or over social wealth exists in him as the owner of exchange values, of money. The individual carries his social power, as well as his bond with society, in his pocket.”

      1. F. Beard

        Most likely, due to the nature of credit creation, they built it with the stolen purchasing power of those Paul Ryan dares to call “parasites.”

  14. kevinearick

    if the state defines the monetary base as taxing authority, then property, then paper, then a bit in a dc computer…

    if you define the monetary base as adaptive skill…

    how do you function as both an explicit individual and an implicit collective?

    if agency can only balance the interests of capital and middle class…

    1. kevinearick

      Marx could explain what an electron was not, but not what it is…”thinking” that he knew a laborer when he saw one…

      can you make the future come true?

      in the flux, no one cares what kind of credential you have. all they know is that their britches are on fire.

  15. John Merryman

    Money is a contract, but it gets treated as a commodity. If I hand you a piece of paper that says, IOU one ounce of gold, is that a commodity, or a contract?
    Last spring I wrote an essay on the subject of the nature of money and later entered in in this contest; http://www.memefest.org/en/gallery/works2010-11/750/, where it was among the runner ups. It drew complimentary comments from Steve Keen, who was one of the judges.
    “Rightfully describes money as an intangible contract, withdrawing the reader from the theoretical stigmas, such as ‘a store of value’, ‘a medium of exchange’, ‘a unit of account’ and ‘a standard of deferred payment’. Explores some proposed alternative monetary systems and considers the strengths and weaknesses.”

  16. Bam_Man

    Government mandated fiat money is about “rules” because it doesn’t have any real value. You have to be coerced into using it. It fails one of the primary tests of real money in that it is a very poor store of value. The 1913 US Dollar now has a value of approximately two cents.

    I get such a kick out of people who refer to gold as “a lump of metal” and can’t understand why some regard it is as the purest form of money. Gold (and silver) became money millenia ago BY CONSENSUS. Not by coercion. Gold is rare. Gold is beautiful. Gold cannot be counterfeited or produced on a government printing press, electronically or otherwise. Gold is indestructible, portable and easily divisible.

    To steal someone’s gold, you must physically take it from them. Not true with government issued fiat money. You are robbed constantly by currency debasement, de-valuation and inflation.

    Gold is HONEST money and will eventually return to it in this country and elsewhere. Anyone that cannot see that the current fiat system is close to the point of failure (like all other fiat systems EVER) must be blind.

    1. Moke

      I wouldn’t call gold honest, but you could say harder to fudge.

      Gold has been debased, whether cheating on the actual weighting, filing, or using other additional metals in coinage. It still steals the purchasing power of your pure gold coinage because it calls into question all coins. Even with gold the element of trust still exists. In times of war or shortage, debasement was agreed to by consensus and other times not.

    2. F. Beard

      Gold is HONEST money Bam_Man

      Not for government debts, it isn’t!

      For government debts, inexpensive fiat is the ONLY ethical money form. However, government money should only be legal tender for government debts*, not private ones.

      People should be able to use gold and everything else for private debts (if mutually acceptable) including fiat but government acceptance of anything but its own fiat is fascist, not honest.

      * After a universal bailout with full legal tender fiat.

      1. Bam_Man

        You may wind up being correct. When the current fiat monetary system fails, it will almost certainly be because a major oil-producing state refuses to accepts it as payment.

        At that point it is quite possible that a “dual currency” system will quickly emerge. Government fiat currency (hugely de-valued) to pay government taxes and government debts and for use in everyday transactions and gold (or a non-fractionally gold-backed currency) to store wealth and pay for valuable items such as oil, property, etc.

        1. F. Beard

          and gold (or a non-fractionally gold-backed currency) to store wealth and pay for valuable items such as oil, property, etc. Bam_Man

          Gold is just an overpriced shiny metal whose current price is a result of speculation on the return of the gold standard. When that speculation subsides, so will the price of gold.

          Of course anything should allowed for the payment of private debts including gold. But I doubt countries that are not rich in gold will agree to use it for international trade. Why should they?

          Also, gold does NOT store value. It went from $800/oz to $250/oz in about 20 years. A diversified stock portfolio is, in theory, a much better store of value. Without our crooked money system, that would be even more obvious.

          1. Bam_Man

            The claim that gold is not a good store of value just because its price (in fiat dollars) dropped from a 1980 peak for a period of 20 years doesn’t hold water. The 1980 peak was an anomaly – a bubble top, if you will – and was very fleeting. Over longer time horizons Gold does a remarkably good job of holding its value. In Roman times, an ounce of Gold would buy you a suit of clothes, a fine meal and a night’s lodging in a fancy establishment. Roughly the same today.

            And as far as Gold just being an “over-priced shiny metal”, when has a stainless steel Rolex ever cost the same as a Gold one?

          2. F. Beard

            Use whatever you want for private debts so long as everything else is allowed too.

            However for government debts, inexpensive fiat is the ONLY ethical money form.

            Surely if gold is real money and/or a store of value it needs no help from government but if it does then it isn’t.

            We should all be sick of money scams and a “fiat gold” is an old one.

    3. F. Beard

      Gold (and silver) became money millenia ago BY CONSENSUS. Not by coercion. Bam_Man

      You have it backwards. Inexpensive bronze coins were used as Roman money till around 50BC when they were demonetized and replaced with gold coins BY FIAT.

      Later, in the American Colonies, the British Government under pressure from British merchants and bankers, outlawed the use of Colonial Script and forced Americans to use gold and silver instead.

      Be gone, goldbug!

        1. F. Beard

          You could try refuting me, you old believer in Isaac Asimov’s “The Foundation Series”?

          What’s the matter? Were you seriously considering bowing down to the Golden Calf yourself? That’s a problem with not worshiping the Creator; one tends to worship idols instead.

          They will fling their silver into the streets and their gold will become an abhorrent thing; their silver and their gold will not be able to deliver them in the day of the wrath of the LORD. They cannot satisfy their appetite nor can they fill their stomachs, for their iniquity has become an occasion of stumbling. Ezekiel 7:19

  17. craazyman

    If one of you rich dudes will send me $1 million dollars, I’ll look at it very carefully and tell you EXACTLY what it is.

    I promise!

    However, I will need to keep half of it for my records. The other half I’ll send back as pennies. hahahahaha

    Profeser D. Tremens, NFL, GED
    Monetary Consultant for Hire
    By the Day or Hour

  18. Kelley Harris

    A farmer is pushing a cart full o vegetables along a road. He’s going to a neighbor to trade his vegetables for a pig. Along the way he finds a man by the side of the road playing a game by himself. The man calls the farmer over & asks where he’s going. The farmer explains & the man makes an offer.
    ” I happen to have in my possession a very powerful magic rock which can give it’s owner power over other people without their knowledge. The owner of this rock will never have to work again. He will be able to persuade other’s to do his work for him.
    Now I see you are an honest hardworking man & you have been kind enough to pause in your travels to hear my tale. Now I am far from home & must return soon and have no further use for this stone. However, I am reluctant to give it up but I like you and hate to see you working so hard. And with this stone you will never have to work again. I am a little hungry & perhaps you would be willing to share some of your vegetables in exchange for this stone?”
    The farmer is not well traveled or knowledgeable & is intrigued by the man’s tale. And the prospect of having power over other’s is seductive to say the least. So he agrees. He leaves his vegetables with the man & takes his stone to market to try it out.
    When the farmer is out of sight, the man eats his fill & sets off for another villlage with the extra vegetables & his little bag of “magic” stones to find a carpenter down on his luck who will build him a house in exchange for one of his “all powerful stones”.
    We have been conned my friends. Wall street & the banking system hath made rubes of us all.

    1. craazyman

      so what happened when the farmer got to the market with the magic stone?

      you didn’t finish the story!

      I bet he repo’d it with the ECB for a few million in euros and went long EWP. He probably has a villa in La Mancha by now, with his own vinyard even. Imagination beats reality every time.

  19. F. Beard

    We should agree to disagree on what private money (good only for the payment of private debts if mutually acceptable) is. My favorite private money is common stock but let’s let the shiny metal worshipers play too along with everyone else.

    However, there should be no confusion over what government money is; government money is the only means by which debts to government can be paid. And for ethical reasons government money should ONLY be inexpensive fiat.

    Btw, I’d bet that “The Economist” will eventually advocate a return to the gold-standard – bank loving fascists that they are.

      1. F. Beard

        I believe in private currencies too – to keep the fiat honest and vice versa.

        But the idea of coexisting government and private money supplies is not mine – it goes back to Matthew 22:16-22 (“Render to Caesar…”).

  20. Calgacus

    Lambert: Mitchell-Innes (et al) is right. Really, that’s about all you need to know. Gold or “Tea, salt and cattle have” NEVER “been used as money.” Can never & will never be used as money. The only thing the human race has ever used as money is “abstract” credit=debt.

    Sell on News is wrong, or expresses himself wrongly, too preciously.
    Money is not rules. Rules guide the behavior of money, there is nothing else to money but this rule-guided behavior, but money is not the rules themselves. That’s just not how the words or concepts “money” or “rules” are used.

    And there is absolutely nothing new about money as “keystrokes” or “blips” or “accounting”. In fact, imho, such expository ideas, which Bill Mitchell imho unfortunately emphasizes pedagogically are positively misleading in comparison to “printing money” – which Lerner preferred, but which Mitchell seems to say that the MMTers consciously decided to not use.

    The commodity theory of money – money is a “thing” is just wrong, useless. Credit/state theories are simple. Money is a type of credit/debt – a relationship. Money is a relationship, like a marriage. The commodity theory makes a category mistake (hint). It says that “the wedding ring is the marriage.” Completely bonkers.

    This confusion is abetted by major trends in philosophy & science – basically Anglo-American “empiricism”, “analytical” philosophy. The effect of trying to decompose everything into “things” is to brainwash people into thinking they can’t understand what they DO understand. The problem is that everyone understands money very well. This understanding is expressed in MMT. People understand the concepts “marriage” or “money” or “credit/debt” perfectly well as relationships, irrespective of, disregarding, independently of the various rules and representations for them, marriage & stock certificates, gold wedding rings or coins, love letters or IOUs. All the conceptual problems of economics come from people trying to force these things into an unsuitable framework.

    Also, there is nothing wrong with saying that economics is a science. It is just that the people who tend to say this the most are the orthodox economists, perched at the “best” universities, publishing in the “best” journals. But who are the least scientific, with no real interest in economics, who practice disgusting fake “mathematics”, and whose “work” and teaching is nonsensical shit that can’t be forgotten soon enough.

    1. F. Beard

      But who are the least scientific, with no real interest in economics, who practice disgusting fake “mathematics”, and whose “work” and teaching is nonsensical shit that can’t be forgotten soon enough. Calgacus

      Sounds right and probably financed directly or indirectly by the banks. How else their blindness to “loans create deposits”?

      Also, by insisting that economics is amoral, they insult God – not a wise thing to do.

    2. tiebie66

      Agreed, money is a type of credit/debt relationship, but this understanding is not well expressed in MMT.

      The heart of every economic transaction is barter! Contra Wray’s view that goods do not buy goods (new economic perspectives/MMT Primer #52), goods/services buy exactly that: other goods/services. The credit/debt relationship emerges when the exchange is not instantaneous but temporally staggered. In the barter exchange, the goods given constitute money and the goods received are the goods bought. Bartering can be partially standardized by standardizing the goods given part of the transaction. And, yes, gold is convenient because it can be divided into standard units, is durable, and has near universal utility as an adornment (thus relates directly to sex – one has to convince me that sex is not a powerful motivator of human behavior before I’ll buy the ‘gold as relic’ story).

      From the aspect of being standardized arises the ‘unit of account’ attribute. Where the standardized good is not easily perishable, it can be traded again if the need occurs. From this (degree of) durability arises the ‘store of value’ attribute.

      A further modification of the barter process permits it to occur in ways that are both spatially and temporally separate. In this case, the ‘unit of account’ and ‘store of value’ attributes are sundered and tokens are created to represent the ‘unit of account’ part. The ‘store of value’ goods (or ‘goods given’ goods) convert to the class of ‘goods bought’. By mandating the use of tokens, the barter system has become very flexible but also very vulnerable. (See also the post by RepubAnon.)

      To me, this has important implications. First, when banks create tokens by way of tokenizing (current or future) collateral, it should be acceptable in principle (I don’t know how to incorporate interest yet). Creating tokens without collateral (i.e. tokenizing ‘thin air’) is counterfeiting because it creates (false) units of account that benefit the creators/first users at the expense of everybody else.

      A commodity money, such as the gold standard, generally makes counterfeiting unlikely because the token is fused with a good that is offered in exchange for another good. It does make debasement possible, but that is an inherent risk to bartering (debasement of coin, weights, measures, etc.).

      When governments counterfeit (as often recommended by MMT), it may be legal, but it is still unethical. The state spends tokens as if they account for something (i.e. something earned or collateralized). This subverts the function of a unit of account, creates inflation (along with its attendant inequity effects), and corrupts prices which are important information signals in the system.

      To summarize (wish I could summerize the ‘wets’ coast, has been a cold summer…): “money” is somewhat ambiguous in that it can be used to indicate either “token” or “token fused with standardized good”. This ambiguity causes (and permits) great mischief. Essentially then, money is a token (not a commodity, although a commodity can be fused with it); money is not debt, but a debt/credit relationship; default on debt is always a default on collateral, not on tokens. I would like to add one more statement: manipulating tokens is not equivalent to manipulating collateral, something that bothers me about MMT.

      1. F. Beard

        The credit/debt relationship emerges when the exchange is not instantaneous but temporally staggered tiebie66

        Nope. Credit creation is a form of counterfeiting that creates the need for more credit creation to pay the interest for previous credit creation. The whole process is jumped started with a fraudulent promise of redeemability in gold, silver or fiat but after a short while a bank’s money becomes backed by the debts owed in it.

      2. F. Beard

        A commodity money, such as the gold standard, generally makes counterfeiting unlikely because the token is fused with a good that is offered in exchange for another good. tiebie66

        A gold standard is essentially private counterfeiting of government money because the government is forced to buy or borrow gold from the private sector in order to create money. Cui bono?

        When governments counterfeit (as often recommended by MMT), it may be legal, but it is still unethical. tiebie66

        If government counterfeits it does so via legal tender laws for private debt (there should be none) and by not allowing genuine private money alternatives for private debts only.

        Btw, we need some government “counterfeiting” tight now so debt to the counterfeiting cartel, the banks, can be paid off without disadvantaging non-debtors.

        Creating tokens without collateral (i.e. tokenizing ‘thin air’) is counterfeiting because it creates (false) units of account that benefit the creators/first users at the expense of everybody else. tiebie66

        The collateral makes no difference to the issue of whether counterfeiting is taking place; it just limits the new (temporary) money to those with collateral.

      3. Calgacus

        tiebie66:Agreed, money is a type of credit/debt relationship, but this understanding is not well expressed in MMT. It’s the heart of MMT. MMT on one foot.

        The heart of every economic transaction is barter!

        Only if one uses “barter” to mean “transaction” or “exchange”.

        The credit/debt relationship emerges when the exchange is not instantaneous but temporally staggered. Basically right. The great John R. Commons, who Keynes said was the closest to his thought, entitled the central chapter, on credit & money, of his magnum opus, Institutional Economics: “Futurity”. Was glad to see Wray recently list him as an MMT forefather, when he was conspicuously and unjustifiably absent from earlier MMT writings, excepting a paper by Tymoigne.

        Discussion of money or debt necessarily imply, involve “time”. Uncertainty, real change, not the timeless time of neoclassical general equilibrium “ricardian” worlds, which are a special case aufgehoben by Keynesian/MMT/Institutional economics.

        When governments counterfeit (as often recommended by MMT), it may be legal, but it is still unethical. This is not at all what “MMT recommends”. Above all, MMT recommends giving money to ordinary people for useful work, the JG. Labor is the source of all value, the LTV is somehow true ( “what else could be?” Joan Robinson) – Money for work is not counterfeiting. MMT vs. “Old Keynesianism” is damn Austrian, dixit Wray. MMT = genuine Keynesianism, just observes that “Old Keynesianism” is a hell of a lot saner than forcing a Depression on people, than forcing people to not work, so that they can have poverty amidst plenty.

        This subverts the function of a unit of account, creates inflation (along with its attendant inequity effects), and corrupts prices which are important information signals in the system. No, “MMT” money issuance creates the unit of account, which can’t exist without it. It need not create inflation, and MMTers generally don’t support inflationary issuance, but issuance to prevent deflation. Prices, price signals simply can’t exist without someone creating these credit/debt relationships. In the modern world, we call these someones, the biggest economic actors, “governments” and we call their debts “(base) money /NFA “.

        F Beard: A gold standard is essentially private counterfeiting of government money. Such aperçus are why we are members of the F. Beard fan club!

        1. tiebie66

          We are still very far apart, though, judging by most of your other comments. I do view economic transactions as evolved and sophisticated forms of barter and, IMO, cannot loose sight of that without getting mired in casuistry or confusion. Hence my sense that MMT is too preoccupied with the tokens, they are more easily manipulated than real economic processes and the danger is that one may think changing the labels on the bottles will make the wine follow. Thus paying money for useful work seems wrong because useful work is paid for with other useful work, money is merely an intermediate step in the process. (You seem to allude to something similar, I admit, but I don’t know from the statement and other comments if it reflects the same view of the issue.)

          I intend to keep reading about MMT in the hopes that I may learn to appreciate it better and/or articulate my misgivings better.

          Nevertheless, appreciated, and thanks to both of you for your replies.

  21. MyLessThanPrimeBeef

    This being Saturday and I am posting from home, so here it goes.

    Money is like pornography.

    You know it when you see it.

  22. alex morfesis

    our modern economic system was put in place by marriner eccles

    before he became Fed Chair he gave this aggressive testimony to congress in the depth of the crash in 1933


    money has come in the form of or been backed by the 6-G

    gold(rare and ineffective)
    gods(and demi-gods, like fearless leader and nobility)

    mostly it has been guns and gods…in the form of fearless leader…the great progeny of illium, the charletans(i mean charlamegnes), stalin, mao, julius ceaser, etc….

    money as we know it really has only existed with the fall of the european nobility…after world war one

    until then, the principalities and kingdoms did not submit to audits, so who owned what was subject to a guessing game globally and if one asked too hard, one might find oneself on the wrong side of a prison door(or worse)…besides, in a battle between guns and gold, guns usually wins…and getting from one point of the world to another was not as easy as booking online at easyjet today, so you could run, but you had a hard time hiding…

    but world war one opened up the globe and the changes were helped along by the opening of the panama canal…

    Sykes-picot denied the Ottomans control of the world oil supply…and the fall of the tsars removed oil competition just as the world was evolving from a horse and buggy semi nomadic existance to an electrified world.

    not looking to open up arguments about the seven sisters or the federal reserve…the world before them was a perpetual nightmare for the average person, with the capriciousness of the nobility still in full swing until after ww2 and continued until Ike and Jfk enforced the North Atlantic Treaty/Lend Lease program, which required the French and British to give up direct control of their colonies…

    so this notion of money(globally…ex-USA)is less than 100 years old, in respect to anything resembling the illusion of a free market system…

    in the USA, the local banker Clearing Houses were the precurser in many ways,to the Fed System and the original money market type vehicles(knickerbocker trust, etc)collapsed and led to a need to prevent another series of recessions…after the civil war in the USA, there were continued boom and bust cycles that were great for those who could afford to travel from one part of the country to another, but an absolute disaster for those left in the middle of a mess with no means of financial rebirth.

    the modern financial world and its money systems have provided people with options…

    when there are too many savers who refuse to participate in economic growth locally, there is stagnation and collapse…so I have no empathy for “savers” being deprived of interest income and economic rent…

    money has its value, in whatever form it takes, in what someone is willing to give up tangibly for some electronic blips on a computer screen we now call money…or better term should be electronic credits…

    one could argue the monetary system and its control mechanisms are just another way for the old nobility to keep tabs on the serfs…maybe, but that is a losing hand for the no-ability…and i dont give it much value as a possibility…

    gold is nice, but if I have the last case of campbells soup and you dont have a gun, and all you have is one krugerrand…how much is this case gonna cost you ???…how valuable is that gold of yours…??

    gold is great if a sector of the world economy is in trouble and you can sneak away to a safe place…but when everywhere you go there is disfunction, then your gold is only good for cavities…

    remember, “the salt of the earth”…worth his weight in salt(not gold)…and it is called a “salary” because of “sal” meaning salt…salt was once more valuable then gold…sooner or later we got refrigerators…and salt was “magically found” everywhere…sounds like oil today…

    the world changes…if the average person can not obtain enough electronic credits to obtain what they want, they will adjust…

    like most things in life, it is not about need, its about marketing marketing marketing…if the king spends time convincing people he is a “good king”…he will probably get more human capital out of them, if he feeds them fear, they will produce less…honey vs hammer…

    globally, the value of MONEY depends on its popularity.

    If someone is sold on the idea that brazil will grow in spite of itself, then people click on the buy brix button…
    and if they think the greeks are bums, they click the sell piigs button…

    money is a conduit…it is less a store of value and more a means of government survival…and a popularity contest…

    we have 168 hrs in a week…some put in 10 hours/some put in 100 hours, trying to be productive…our tax system is designed to absorb money from the 30-52 hours most put in who work either in their own endeavors or for a party or an entity…the question becomes when one has the self discipline to live within ones means, what is to be done with the excess…

    money…be it air money which is the vast majority of historical funds via fiat, or hard assets of limited value if one does not have the means to project force…is fleating and one can not in fact take it with you when the breathing is over…at it can buy you and how you can use it is what matters…

    but whether cash or financial instruments or fiat derivatives, it has now and has always had four horsemen

    in our time they are:



    lawsuits(or war)

    and interest rates…

    these are the variables that can turn
    russian bonds in 1912 into prayer bonds
    paid off one hundred years later at pennies on
    the dollar…

    who would have suggested that the daily
    share price of the US STEEL of 1971
    would not even be reported by the financial
    media in 2012…

    change is the only constant…and a fool who thinks their money is safe by standing still has only history to reflect

    but no matter what the facts, what the occasion, or the situation…somebody has to drive the bus…

    be it in zimbabwe, in cuba, or the BxM18 to wall street, somebody has to drive the bus…

    money is what you make of it…even in the worst hyperinflation…someone is making money…

    it is not about your proposition…its about your

    good luck
    be well

  23. Trish Flanagan

    As Martin Lietaer economist and author of “New money for a new world money is often defined in term of what it does (medium of exchange, store of value) rather than what it is which is a social agreement or contract. And like all social agreements ,when they no longer work, they can be rewritten. We need to take our blinders off and look at the current economic crisis as a monetary crisis. A monetary system based on debt and interest sows the seeds of its own destruction and single currency systems constrain economies and lead to plutocracies and debt peonage.

  24. scraping_by

    “One of the consequences of economics pretending to be a science, when it is not…”

    A true statement, and one that has had far too little play.

    If economics was taught in the literature department, instead of the Social Science department, it would be considered a form of Magic Realism, where magical and everyday elements are combined with no change in tone.

    Thus the magical ‘money’ is mixed with the everyday making and getting in most economic models with no warning that it’s shift in worlds. Just like the conflation of ‘making’ and ‘buying’ that’s at the heart of 1% world view on display this week in Tampa. And in the White House the last 30 years.


  25. financial matters

    I like Michael Hudson’s basic view of money which is that it’s the credit people will accept for oil and food.

    I also like how the term money is used in this review by Henry C.K. Liu, Dpt of Economics, Univ of Mo, Kansas City and Asia Times of Michael Hudson’s book, ‘Trade, Development and Foreign Debt (How trade and development concentrate economic power in the hands of dominant nations)’ first published in 1992 with a 2009 update.

    ‘Michael Hudson is unique among economists in that he is also a scholarly historian. Economic theories are abstract constructs that grow out of concrete worldly conditions viewed through the lens of contemporary ideologies. Thus a clear knowledge of historical conditions and social attitudes is indispensable for understanding the relevance and limits of economic theories. His observation that balance of payments informs little unless the nature of the money in which trade is denominated is clearly understood is a major contribution to trade theory analysis. Trade and development can become mutually exclusive if debt is financed not by sovereign credit but by foreign currency.’

  26. craazyman

    well, all in all, not a very good show I’m afraid.

    lots and lots of noise but, frankly, no signal.

    This must be what it feels like to be a SETI astronomer, on the night shift. I hope they’ve got a fridge and some beers to pass the time, there in the SETI lab. God knows what they do to pass the time. Probly watch Star Trek reruns. hahahah. .

    It’s clear nobody has a clue what money is, but a lot of people here know how to type. haha.

    1. F. Beard

      It’s clear nobody has a clue what money is, craazyman

      See Gaianne’s comment below.

      Also, government money is well defined – pay your taxes with it or be punished.

      As for private money, opinions vary so there should be NO government enforced private money standard.

    2. Calgacus

      No, craazyman, as much as I value your insight, the problem is that everyone knows what money is. Was ist bekannt, ist nicht erkannt. When you erkennen (savoir) something which was only bekannt (connaitre) before, then you have made real progress, the kind that usually takes centuries to achieve. That’s what Keynes/MMT/Institutional econ does – explain what we already know, which is always the simplest, the easiest, the hardest thing of all.

  27. Gaianne

    A while back I came across a book from the early 1960s by a lawyer named Bazelton called The Paper Economy. In The Paper Economy, Bazelton defined money as any contract which can be enforced in a court of law.

    First point: Money is a promise that can be compelled, even if the promiser wants to reneg.

    Second point: Since any enforcible contract can be converted to cash, any such contract has value and ultimately can act like money. This is the basis of his definition.

    Third point: The modern West has increasingly acted to strengthen these first two points by making more and more kinds of contracts convertible and transferable. A key such action occurred before Modern times, perhaps back in the Middle Ages: Party A writes an IOU–a promise to pay–to Party B, Party B endorses it over to Party C who, without and perhaps even against the will and permission of A, can demand payment from A even though the note was written to B–AND A COURT OF LAW WILL ENFORCE C’s CLAIM. The modern economy is built on this kind of transferability.

    Now this is not all so different from Sell-on-News’ idea of rules, but it is fuller and deeper, suggesting how the rules are created and how they get enforced.

    Bazelton passes right over the role of tax law in creating money, probably because, even if it is important, it is secondary.

    Fourth point: This definition says nothing about usury–that is, interest on loans and return on investment–which had been prohibited as mortal sin before the Counter-Reformation (and with good reason!) but which later became the basis of Western economic life. It may have been historically inevitable that the West would choose usury, but from a theoretical perspective, it was a free choice.

    Fifth point: The heart of Bazelton’s book is that the choice of usury creates a problem for the West, as eventually the paper economy (money) will exceed all possible real-world goods and services. This will inevitably create a crisis followed by economic disruption. (Yes, Bazelton was predicting our current predicament.)

    Sixth point: Money is not money if there is no legal enforcement. That is why money has become funny right now: Contracts involving Too-Big-To-Fail banks are not enforced. A small example: the illegal but retroactively legalized looting of customer accounts at MF Global. A larger example: Derivatives–Nobody knows how or if they will (or even can be) enforced. Another large example: Pick any article posted on this blog.

    Seventh point: Bazelton did not try to map out the crisis that would ensue from the disconnect of the paper economy from the real economy. Like us today, he more or less expected some combination of economic collapse, revolution (whether successful or unsuccessful) and civil war. He more or less hoped that by anticipating these things we would choose to avoid them.

    Eighth point: A corollary to this is that if contracts are not enforced, money will cease to exist, and goods and services, if exchanged at all, will be exchanged through other means. People will be forced to take the law into their own hands, as no larger legitimacy will exist. People who believe they are powerful may well welcome this state of affairs, believing they will prevail in creating and enforcing their own law. Indeed, the 1% seem to have embarked on this course already, deliberately undermining the legitimacy of fundamental institutions. In the short-run they are already and will be successful, but long-term their failure seems guaranteed.


    1. F. Beard

      Excellent comment. I agree.

      It may have been historically inevitable that the West would choose usury, but from a theoretical perspective, it was a free choice. Gaianne

      Usury is permitted in Deuteronomy 23:19-20 from “foreigners”. Hence Jews were allow to collect usury from Christians. That’s not a great formula for social cohesion but then again God never meant for the Jews to be assimilated so long as they did not accept their Messiah?

      But aside from that, common stock is an ideal private money form that requires no usury yet is backed by performing assets as bank-credit is but in an ethical manner.

      1. Gaianne

        F Beard, thanks.

        The law of usury in Deuteronomy treats foreigners as, well, foreign–not quite people. Harmony is neither sought nor desired. Exploiting the Other is acceptable. Not a great moral code, but there it is. Not unusual or special, either. Indeed, as we look at tribalism to teach us how to manage decentalization, this sort of ethnocentricity is a typical downside.

        But to give proper credit, the ancient Hebrews did notice (they were not alone in this) that usury is highly corrosive of social harmony.


    1. Calgacus

      Interesting, but set my teeth on edge, which is why I wrote a long reply for Mike Norman’s place, which I am too tired to finish & post. One F Beard, one Graeber, yea even one Lambert Strether, whose thought is alive — is worth a hundred Beggs’s, who prays at idols of stillborn ideas. Who Just Doesn’t Get IT.

  28. Hannibal

    Money/currency is a believe sytem that is a platonically fabricated abstract. A place holder, worth nothing!

  29. kevinearick

    money can’t do real work; only you can do that.

    and in a world where the majority assumes money does work, there are relatively few (rare) real life laborers.

    don’t sell yourself short kneeling for equal opportunity to be a slave to money, o to be the warden. both are prisoners.

    if you look through the glass, you will see that you are always dependent on the kindness of strangers, and the best way to open the door is with hard work, intelligently applied, in good spirit, regardless.

    don’t begin by assuming failure, that the empire is all powerful, and expect an effective outcome.

    1. Skippy

      Money is – will – desire – multiplied on an exponential scale, a means to project that will upon others, in a nonfactual based argument?

      Skippy… does labor need money? What would capital do with out it?

  30. Lidia

    My favorite definition of money is “a claim on future goods and services”.

    Now, keep in mind that—on the one hand—such claims could very well be fraudulent, extortionary, or otherwise socially or legally unjust. [In fact, the very existence of money works to exacerbate inequality and to unmake social ties and networks.]

    Second, and more to the point of our current troubles, money as “a claim on future goods and services” breaks down completely when future goods and services are destined to be fewer in the aggregate than at the time when the claim was issued.

    Then we must consider the shocking population predicament, which adds to the number of moral claims on future goods and services and, absent quantitative easing (money printing), continually reduces the amount of money available per capita, all else being equal.

    This is such a straightforward set of observations and equations… I don’t know why people insist on mystifying things to the extent that they do.

  31. Pat McClung

    Money is a store of value. Gold is a better store of value than (for instance) dollars. When I studied economic history at the University of California (1958), I used to stand up in a class of 400 and argue with renowned economic historan David Landes about it. He was decrying the “stupid French peasants”. who, whenever they had savings, would buy gold and bury it in the ground. Landes then thought, that after Bretton Woods, all of the world’s money problems had been solved. How wrong he was. Couple of graphs to illustrate my point:

    1. Lidia

      I’ve recounted this before, but it’s apropos here.

      Talking to a rich Milanese lawyer, I’d remarked that it was bizarre to hand over something like a house, and get bits of paper in exchange. She said bemusedly, “that’s a very Sicilian attitude”.

      1. F. Beard

        But Sicily is poor, no?

        I read once that the reason England beat Napoleon was that England used a credit based money system while Napoleon used hard money.

        There’s something disgusting about someone biting a coin to verify its precious metal content, no? Better to trust in ethics, honesty and the rule of law, yes?

        And then there are the various cheats such as coin clipping, coin sweating, etc. Reeks of idolatry, no? Worshiping shiny metals?

    2. F. Beard

      He was decrying the “stupid French peasants”. who, whenever they had savings, would buy gold and bury it in the ground. Pat McClung

      That’s sad since it violates the message of the “Parable of the Talents” (Matthew 25:14-30) that even usury is preferable to burying one’s talent in the ground.

      However, fractional reserve lending, a dangerous, unstable form of counterfeiting, was not invented till around the 13th Century so in the days of Matthew 25:14-30 there was far less danger of losing one’s principal in a bankrun caused by a deflationary collapse.

        1. F. Beard

          Actually, nothing is said about the faithful servants using banks:

          Immediately the one who had received the five talents went and traded with them, and gained five more talents. In the same manner the one who had received the two talents gained two more. Matthew 25:16-17

          1. Buck Eschaton

            I’ve been thinking about this parable and can’t help concluding that the one cast out is the hero. I assume that the talents here are meant to be weapons to dispossess people of their farms and properties. The unworthy servant fears God the warnings re usury and buries the weapon in the ground, he doesn’t play the game and is in the end cast out the same way Jesus is cast out.

          2. F. Beard

            Your theory does not jive with the preceding verses in Matthew 25. Also, usury from foreigners is allowed in Deuteronomy 23:19-20

          3. Buck Eschaton

            I can’t help coming to that conclusion. The Jubilee is the context for the Gospel story. There were Jubilee expectations, the 10th and Final Jubilee as prophesied in Daniel. John the Baptist was in the Wilderness, where the debtors went to escape, preaching Repent or Return because the Great Jubilee was at hand and the debts would be forgiven and you could return to your lands which had been taken by the usurers. Jesus reads from the Jubilee passage in Isaiah.

            Jesus with a whip, just like the High Priest in the Mishnah on the Day of Atonement, cleanses the temple of the usurers. Cleansing the temple was symbolically cleansing the World, because in the mythology the Temple was the World. So Jesus was cleansing the world of the damage usury had done to the bonds uniting people to each other.
            …And it is the Kingdom of Heaven that suffers violence.

  32. kevinearick

    Job, emotional roller coaster

    stupid men can dig for gold and silver, but wisdom is not to be found among the living.

    if you do not help others get to work, yo have no one to blame but yourself when you have no work.

    if you wait for others to do the work that only you can do…

    only those that are mobile can smooth the boom bust cycle of positive feedback bipolar insanity.

    money only makes sense if your community is self-sustaining.

  33. radish

    I think if you want a one-word description of money, “money is a language” works better than “money is rules.” Both are arguably true, and both correctly reflect the fact that money is information, not stuff. But the “rules” aspects of money are ambiguous and subject to both evolution and decay.

    Money is a sparse, narrow, super-specialized language, heavily optimized for negotiating acts of reciprocity and cooperation. Historically, cooperation outside of the context of some existing relationship (like kinship or acquaintance) was much more expensive (in terms of time and energy) and/or risky. Negotiating reciprocal/cooperative exchanges with people you didn’t know first required you to build trust with them, and building trust takes time and effort. Cooperation among very large numbers of people could be achieved only where all of those people shared some strong social norm, or could be coerced collectively rather than individually.

    So the real cost of trust is the practical problem of socioeconomic efficiency that negotiating via money solves. But one of the problems it has is that it can do so only at the expense of co-opting other forms of social cohesion – by commoditizing relationships, and reducing aggregate trust within the population.

  34. craazymans

    I think Pink Floyd got it right, poetically speaking, back in the day.

    Less evocatively stated, I think money is “discrete units of abstract social cooperation”. Social cooperation is only a subset of all cooperation, because you mow the lawn for your family but don’t charge a fee and you hold open doors for ladies (or you should) but don’t send them a bill. Of course, my definition seems to require a definition.

    It never ends when it comes words, does it? Each one needs another, and another, and then they finally all fall apart.

  35. kris

    This is probably one of the best posts ever on NC. I had come close to the same conclusion, but was unable to formulate it in such a fantastic way:

    Brilliant, absolutely brilliant.

  36. Chauncey Gardiner

    Money is Schrödinger’s Cat. Like the cat, Money is both simultaneously alive and dead. The observer doesn’t really know which state applies, however, until a transaction involving the Money actually occurs (although the observer may have independently attached a particular probability to one outcome or the other).

    Money only has value (is alive) when and where it is actually used in a transaction (the observer checks to see if the cat is alive or dead) and the exchange occurs because the Money is “alive”; i.e., the rules that govern the Money in that particular location apply.

    It is important to recognize that Money can be both destroyed (dead), as well as created (alive). The paradox tells us what money is. ;)

  37. Technical Analysis

    First of all great thanks to share some untouched aspects about Money along with prominent people’s view on it.

    Nobel laureate Sir James Mirrlees comment captured my attention “Traditional economic theory has no explanation for the existence of money.”

    Now, we can not assume the existence of life without money. For me, Money is ruler and Power in today’s financial circumstances.

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