Wednesday, February 16, 2011

Intrinsic Problems


For me, the economy is transaction. Every transaction is part of it. Any transaction is an example of it. If I buy a hamburger, wolf it down, pay up, and leave, that's a transaction.

The "credit theory of money" looks at things differently. It doesn't look at my burger transaction. Or maybe it does, but then it also looks at the $10 bill I used to pay for my meal. And it says that the $10 bill is a promise to pay $10, even after lunch is bought and paid for.

I think that's just silly.

The people who look at money that way are still thinking in gold-standard terms. Intrinsic-value terms. They're thinking the $10 bill isn't gold, so it has to be a promise of gold, or a promise of paper, or a promise of something. It isn't. It's just a medium of exchange. It's a way to transfer value, because it is a store of value.

When I sit down at the counter and order a burger, my words convey an implied promise to pay for the grub. After I eat, when we settle up, I make good on that promise.

That is the medium-of-exchange part of it. Then there is the standard-of-value part of it, which means we call it "the dollar" and it is issued by the Fed. And then there is the store-of-value part which depends on how well they run the economy. And that's the whole thing.

That's it. There are no other promises to think about. There is no more economics to think about. The economics is simple. The rest is philosophy or something.

6 comments:

Greg said...

Now, the "promise" is just that "it" can be used to extinguish your tax liability.

At least that what I think the promise is now. Which isnt trivial. Somewhere on down the line of transactions someone will need to pay off a ax bill with it. In fact most everyone will so that is why we all accept them ultimately. This is central to Mosler/Mitchell-nomics.

The dollar bill is a liability if the state.

The Arthurian said...

I understand: If I borrow a cup of sugar (??) from you, and we put it in writing, then I have a liability and you have an asset. I guess we could change the cup of sugar to pieces of paper with numbers on them, and change you and me to "everybody" ...

But, "So I can pay taxes" is way low on my list of reasons that I accept dollars. In fact, even if I didn't have to pay taxes, I would probably still accept dollars. :)

I guess accept dollars because other people accept them.

The dollar is a liability of the state. Okay, but if you bring them a twenty, what will they give you for it. Two tens?? Where is the liability in that?

I don't have any great theory on this. I'm just knee-jerk reacting. Trying to figure it out.

I see you got your Part Three posted. Just caught it quick this morning. Looks good...

Greg said...

It may be way down your list of reasons why you accept dollars NOW, but the way to guarantee that it will be used is to assign a tax to it. This is why the US$ remains at the top of hierarchy of money in this country. We've been using them for decades now and there are lots of things denominated in them that we want so we dont think of it as being tax driven but that is the initial trick to establishing it as a currency.

See here:

http://www.netrootsmass.net/fiscal-sustainability-teach-in-and-counter-conference/stephanie-kelton-are-there-spending-constraints-on-governments-sovereign-in-their-currency/

Ohm said...

"I promise to pay" is indeed meaningless survival from Gold Standard days. Today's currency is more analogous to Equity, a share of the total consumption (production + imports - exports) in the country in the years to come. Nobody is really promising anything, a $10 bill is simply 10 units of currency ($), the power of what one unit can buy being variable, just like price of a company share.

The Arthurian said...

Ohm, you said this already, but I do have to agree: We think a lot alike.

But you're better than I am with the technical terms.

piet said...

forgot to mention:
happy mirror day, a gap one to (one of the 52 faultline days of every 260 full round (spiral i should say)

also, to make it easy:
Beckerath"