I think you could also address debt with a similar view, and I’m not talking about credit.
When the King granted an English town “Market status”, what was he granting? We think it’s similar to permission to hold a party, but it’s not. In these market towns there is a covered area big enough for at least a dozen people. What the market license was, was permission to hold debts amongst one another. So the farmer could loan wheat to the miller and the miller could loan flour to the baker. Now you are the medievalist, and I am just a poorly educated bogan, but that covered area was to make sure that on “market day” everyone was present to square off their books and the English habit that arose in this time was genuinely an expression of concern for someone who owed you money.
“Hi, how are you?”
“Excellent thank you. How are you?”
“Very good”.
That and the covered areas are all the evidence I have and some might say it was just an artefact of plague - but we would have copied this behaviour from the local elites without really understanding why they did it.
Debt was far more important than money here for the market towns to “take off”, and the reason the charters were sought in the first place.
I expect you’ll be able to pour some cold reality on that, but I haven’t seen a better explanation for “hi how are you?”.
My debt is your credit. Debt focuses on the liability, credit on the asset.
In-kind transactions often operated on a credit/debt basis. Market towns provided a protected space, that aggregated commerce and provided mediation services. So, yes, people could “swap off” obligations. Indeed, that is much of what proto-bankers did.
I like the suggestion about “hi, how are you?” but am nowhere near knowledgeable enough in comparative or historical linguistics to comment.
Money is, in a sense, fictional (unless it is physical gold or silver coins or something else seen to have intrinsic value). Paper is at best "stock in a country" - if you make more money than value, the currency is worth less, kind of like a 2:1 stock split where the new shares are only worth half. Except you don't get to double your shares!
I cannot speak for Oz but FDR confiscated private gold in 1933. The Depression lasted until at least 1939. That was not quite the palliative you claim, I'd say.
“Paper is at best "stock in a country" - if you make more money than value, the currency is worth less, kind of like a 2:1 stock split where the new shares are only worth half. Except you don't get to double your shares!” Yes.
This is why I think the petrodollar point is a bit overdone. Yes, petroleum products being traded in dollars absolutely supports more US$’s than otherwise. Yes, that generates benefits for the US. But petrodollars are hardly the only reason to use US$’s outside the US and there is an awful lot of US output backing the US$.
Overdone but important - USA "exports" some of its inflation and the petrodollar is one mechanism for that. If those dollars all came home at once, that would certainly not be a good thing for the USA, and probably fairly bad.
Agree. The Federal Reserve would have to retire a lot of US currency very quickly. But experience with the previous reserve currency—the UK pound—is that such shifts tend to be a process rather than an event.
FDR devaluing the US$ generated the fastest rise in industrial output in US history. Unfortunately, he then got the National Industrial Recovery Act (NIRA) passed, and the output surge came to be screeching halt due to the Act being a negative supply shock. When the US Supreme Court declared key bits of NIRA unconstitutional, the output surge resumed. The US Treasury then proceeded to “insulate” gold, sending gold surging in value, generating the sharpest (non-Depression) recession in US history up to that point. When the US Treasury reversed the policy, output recovered. If FDR had just devalued the US$ and then done nothing else with macroeconomic impact, the recovery from the Depression would have been much more sustained and thorough.
When it comes to economics, ANY attempt to arrive at some conclusion regarding whether a decision was right or wrong is pointless. Imagine I step off the curb and get run over a bus. One can say that my decision to step off the curb at that instant was a mistake. One can say that my decision to leave the house was a mistake. One can say that my decision to get out of bed was a mistake.
Regarding Brazil in 2009, the government was then making all the right decisions, to avoid recession. Suddenly, in January of 2015, after the reelection campaign of Dilma de Dingbat, everything comes crashing down. And now, Brazil may very well bring down the whole global GREEN ECONOMY scam:
Fascinating, but unsurprising, article. Decades ago, I was making the point that if one was buying “carbon credits” from Russia, what on Earth would you be buying? For the very reasons the article reveals.
The whole “global warming” hyperbole is just an amazing waste of resources. It is perhaps the greatest example of us being the broken-feedbacks civilisation.
What the young author failed to address (and probably would not be too interested in pursuing anyway) is the iron triangle of NGOs/Federal bureaucracy/International banking - that in cahoots with international petro and mining interests - effectively close off the Amazon basin to locals. If you want to selectively cut and manage your own 300 acres of native growth forest, then you are a criminal, no matter how well you do it. On the other hand, if you hand over management to a some NGO-run cooperative, you are a good person, no matter how ruinous the operation becomes. And peeking behind the NGO facade one finds "partnerships" as far ranging as Norway and Spain and Banco Santander and Bloomberg and so-on and so-forth. This is always the case with anything having to do with "the environment" in Brazil. Everything always has to generate cash-flow for some 3rd party. Even our dumb little weekend ranch in Goiás has generated hundreds of dollars in fees to "consultants", just to keep the fines away.
It is perfectly possible to trace the consequences of economic decisions. And there were highly credible commentators at the time who said going back on gold at the 2014 rate was a mistake. They proved to be correct.
Part of good economic policy is knowing when to shift policy. The failure of the US Fed after the GFC was not so much in what it did, but what it didn’t do.
It is good that you revisit this topic periodically*. I have been struggling to fully understand it, rather than focusing so much on the store of value function of money, which still seems to be intuitively obvious [but see below for another obvious item]. I think you were discussing this about a year ago, but it could have been twice that, the way time flies!! But you were emphasizing the expectations aspect of the value of money [as you also did in 2012!] and I was not yet ready to give up on the store of value idea. Perhaps separating out money as a transaction good from money as an asset for future use in transactions will help me come over to your point of view.
I bold faced the following in my Word copy of this essay: "The store-of-value role is the least important role of money. We can tell that, because people still use money during hyperinflation episodes when money is, by orders of magnitude, the worst asset, the worst store-of-value, in the economy.
People’s expectations about the future value of money do, however, matter a lot."
For me, that is an eye opening statement/ observation (and rather obvious once you mention it :-) ). Thus, also potentially** a clarifying one. Is it fair to consider that a transaction good has a positive "velocity" in the economy [V=1.0?], while an asset has a "0" velocity in the economy? Thus such money assets don't contribute to GDP/NGDP per se, except as their availability/ plentitude encourages performing actual transactions to realize real or prospective wealth in the near or long term future?
*I see from my collection of web essays that I have copied into Word files, that I even have one of your essays (probably from lorenzofromoz.net ?) on this topic from March 15, 2012. But for some reason I failed to capture the web link at that time, which is my usual practice. And now I cannot seem to find it again, even in your archive. Is there still a live link to "Money is a transaction good, so expectations rule" ??
*Also a good way to spend a couple of hours on a Sunday afternoon. And it shows you have been on my intellectual horizon for a long time - in a good way!
**And yet ... ! I have often emphasized the usefulness of money as a social invention, including the desire to keep using it even in the face of near hyperinflation, but without recognizing your transaction good vs. asset dichotomy!! DOH!
If that post was on Skepticlawyer, it will no longer be on the web.
I keep revisiting partly because my ideas keep developing (mainly, clarifying) and partly because I read or listen to something that provokes me to think about it again.
I am reminded of Huxley’s response to Darwin’s theory of natural selection: “oh, how obvious, why did I not think of that?” Some things are only “obvious” after someone points them out.
Yes, an asset has zero velocity in the current time period: an asset being something held across at least two time periods. GDP is a measure of output transactions, not asset transfers as such. So, what a stockbroker does contributes to GDP but the stock itself is not part of it.
Money IS a story of value: it is just a highly variable store of value. And its store of value function is derivative, not basic.
Offtop, do you recommend any book on Chinese history in 20C?
Any book by Frank Dikotter.
This is the second piece you have done on money.
I think you could also address debt with a similar view, and I’m not talking about credit.
When the King granted an English town “Market status”, what was he granting? We think it’s similar to permission to hold a party, but it’s not. In these market towns there is a covered area big enough for at least a dozen people. What the market license was, was permission to hold debts amongst one another. So the farmer could loan wheat to the miller and the miller could loan flour to the baker. Now you are the medievalist, and I am just a poorly educated bogan, but that covered area was to make sure that on “market day” everyone was present to square off their books and the English habit that arose in this time was genuinely an expression of concern for someone who owed you money.
“Hi, how are you?”
“Excellent thank you. How are you?”
“Very good”.
That and the covered areas are all the evidence I have and some might say it was just an artefact of plague - but we would have copied this behaviour from the local elites without really understanding why they did it.
Debt was far more important than money here for the market towns to “take off”, and the reason the charters were sought in the first place.
I expect you’ll be able to pour some cold reality on that, but I haven’t seen a better explanation for “hi how are you?”.
My debt is your credit. Debt focuses on the liability, credit on the asset.
In-kind transactions often operated on a credit/debt basis. Market towns provided a protected space, that aggregated commerce and provided mediation services. So, yes, people could “swap off” obligations. Indeed, that is much of what proto-bankers did.
I like the suggestion about “hi, how are you?” but am nowhere near knowledgeable enough in comparative or historical linguistics to comment.
Money is, in a sense, fictional (unless it is physical gold or silver coins or something else seen to have intrinsic value). Paper is at best "stock in a country" - if you make more money than value, the currency is worth less, kind of like a 2:1 stock split where the new shares are only worth half. Except you don't get to double your shares!
I cannot speak for Oz but FDR confiscated private gold in 1933. The Depression lasted until at least 1939. That was not quite the palliative you claim, I'd say.
“Paper is at best "stock in a country" - if you make more money than value, the currency is worth less, kind of like a 2:1 stock split where the new shares are only worth half. Except you don't get to double your shares!” Yes.
This is why I think the petrodollar point is a bit overdone. Yes, petroleum products being traded in dollars absolutely supports more US$’s than otherwise. Yes, that generates benefits for the US. But petrodollars are hardly the only reason to use US$’s outside the US and there is an awful lot of US output backing the US$.
Overdone but important - USA "exports" some of its inflation and the petrodollar is one mechanism for that. If those dollars all came home at once, that would certainly not be a good thing for the USA, and probably fairly bad.
Agree. The Federal Reserve would have to retire a lot of US currency very quickly. But experience with the previous reserve currency—the UK pound—is that such shifts tend to be a process rather than an event.
FDR devaluing the US$ generated the fastest rise in industrial output in US history. Unfortunately, he then got the National Industrial Recovery Act (NIRA) passed, and the output surge came to be screeching halt due to the Act being a negative supply shock. When the US Supreme Court declared key bits of NIRA unconstitutional, the output surge resumed. The US Treasury then proceeded to “insulate” gold, sending gold surging in value, generating the sharpest (non-Depression) recession in US history up to that point. When the US Treasury reversed the policy, output recovered. If FDR had just devalued the US$ and then done nothing else with macroeconomic impact, the recovery from the Depression would have been much more sustained and thorough.
When it comes to economics, ANY attempt to arrive at some conclusion regarding whether a decision was right or wrong is pointless. Imagine I step off the curb and get run over a bus. One can say that my decision to step off the curb at that instant was a mistake. One can say that my decision to leave the house was a mistake. One can say that my decision to get out of bed was a mistake.
Regarding Brazil in 2009, the government was then making all the right decisions, to avoid recession. Suddenly, in January of 2015, after the reelection campaign of Dilma de Dingbat, everything comes crashing down. And now, Brazil may very well bring down the whole global GREEN ECONOMY scam:
https://www.compactmag.com/article/carbon-credits-are-destroying-the-amazon/
Fascinating, but unsurprising, article. Decades ago, I was making the point that if one was buying “carbon credits” from Russia, what on Earth would you be buying? For the very reasons the article reveals.
The whole “global warming” hyperbole is just an amazing waste of resources. It is perhaps the greatest example of us being the broken-feedbacks civilisation.
What the young author failed to address (and probably would not be too interested in pursuing anyway) is the iron triangle of NGOs/Federal bureaucracy/International banking - that in cahoots with international petro and mining interests - effectively close off the Amazon basin to locals. If you want to selectively cut and manage your own 300 acres of native growth forest, then you are a criminal, no matter how well you do it. On the other hand, if you hand over management to a some NGO-run cooperative, you are a good person, no matter how ruinous the operation becomes. And peeking behind the NGO facade one finds "partnerships" as far ranging as Norway and Spain and Banco Santander and Bloomberg and so-on and so-forth. This is always the case with anything having to do with "the environment" in Brazil. Everything always has to generate cash-flow for some 3rd party. Even our dumb little weekend ranch in Goiás has generated hundreds of dollars in fees to "consultants", just to keep the fines away.
It is perfectly possible to trace the consequences of economic decisions. And there were highly credible commentators at the time who said going back on gold at the 2014 rate was a mistake. They proved to be correct.
Part of good economic policy is knowing when to shift policy. The failure of the US Fed after the GFC was not so much in what it did, but what it didn’t do.
You are absolutely correct. But I wonder if a PERFECTLY bad mistake is possible, in that everybody is worse off. Somebody always seems to make money.
It is good that you revisit this topic periodically*. I have been struggling to fully understand it, rather than focusing so much on the store of value function of money, which still seems to be intuitively obvious [but see below for another obvious item]. I think you were discussing this about a year ago, but it could have been twice that, the way time flies!! But you were emphasizing the expectations aspect of the value of money [as you also did in 2012!] and I was not yet ready to give up on the store of value idea. Perhaps separating out money as a transaction good from money as an asset for future use in transactions will help me come over to your point of view.
I bold faced the following in my Word copy of this essay: "The store-of-value role is the least important role of money. We can tell that, because people still use money during hyperinflation episodes when money is, by orders of magnitude, the worst asset, the worst store-of-value, in the economy.
People’s expectations about the future value of money do, however, matter a lot."
For me, that is an eye opening statement/ observation (and rather obvious once you mention it :-) ). Thus, also potentially** a clarifying one. Is it fair to consider that a transaction good has a positive "velocity" in the economy [V=1.0?], while an asset has a "0" velocity in the economy? Thus such money assets don't contribute to GDP/NGDP per se, except as their availability/ plentitude encourages performing actual transactions to realize real or prospective wealth in the near or long term future?
*I see from my collection of web essays that I have copied into Word files, that I even have one of your essays (probably from lorenzofromoz.net ?) on this topic from March 15, 2012. But for some reason I failed to capture the web link at that time, which is my usual practice. And now I cannot seem to find it again, even in your archive. Is there still a live link to "Money is a transaction good, so expectations rule" ??
*Also a good way to spend a couple of hours on a Sunday afternoon. And it shows you have been on my intellectual horizon for a long time - in a good way!
**And yet ... ! I have often emphasized the usefulness of money as a social invention, including the desire to keep using it even in the face of near hyperinflation, but without recognizing your transaction good vs. asset dichotomy!! DOH!
If that post was on Skepticlawyer, it will no longer be on the web.
I keep revisiting partly because my ideas keep developing (mainly, clarifying) and partly because I read or listen to something that provokes me to think about it again.
I am reminded of Huxley’s response to Darwin’s theory of natural selection: “oh, how obvious, why did I not think of that?” Some things are only “obvious” after someone points them out.
Yes, an asset has zero velocity in the current time period: an asset being something held across at least two time periods. GDP is a measure of output transactions, not asset transfers as such. So, what a stockbroker does contributes to GDP but the stock itself is not part of it.
Money IS a story of value: it is just a highly variable store of value. And its store of value function is derivative, not basic.