Monday, January 9, 2012

M1 is the money we use for income





(Read the post title again.)



Posted by The Arthurian at 4:00 AM

6 comments:

Greg said...

I dont get the word "use".

All money that is spent is used for income.

Income = Spending

Sometimes I use money in my checking account, sometimes I use my credit card (and that later comes form my checking account) sometimesI take it out of a cookie jar. If I take it out of a cookie jar and buy something form my neighbor it goes un recorded but if I take it form my cookie jar and buy something at the store it goes into THEIR checking account.

So thats three types of money used for income, does M1 cover all those?

January 9, 2012 at 8:20 AM
The Arthurian said...

Income = Final spending. Not the same thing.

More to the point, money that is saved is NOT spend and is NOT used for income... Money that is saved is not "readily accessible for spending":

FRED:
"M1 includes funds that are readily accessible for spending. M1 consists of: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits..."

Money in an account that is not "readily accessible for spending" is not in M1.

Currency (within limits noted by FRED) is part of M1, so your cookie jar money is included, as are the coins lost under the couch cushions.

I never read anything about credit cards and M1. But I think that if I borrow and spend, the recipient receives M1 even if the money I started with was not M1.

I don't know if the seller receives money when I use a credit card, or if they receive "receivables"... promises.

January 9, 2012 at 5:51 PM
Clonal said...

Art,

These days, instead of M1, you should be using MZM -- this is because you can write checks on savings accounts, and money market funds, which are also include in MZM in addition to what is in M1.

January 9, 2012 at 9:20 PM
Greg said...

I dont get the use of the word final.

Any spending is someones income. All spending is final you cant ask for it back.

January 9, 2012 at 10:01 PM
The Arthurian said...

Greg: "All spending is final you cant ask for it back."

Oh, I like that!

Greg, you know your MMT but you don't know your pre-MMT economics. Economists talk of "final" spending (which counts in GDP, and GDP equals income) to distinguish it from "intermediate" spending, and to avoid "double-counting" when they tally up the GDP or the income of the nation. It used to be standard fare in economics 101.

Clonal,
Maybe if I was making Milton Friedman's argument about inflation I would want to use MZM.

Keynes said we can draw the line between money and debt at any convenient point. MZM is a line much closer to debt than is M1 money. (People earn interest on their money market funds, right? So somebody must be paying interest for the use of that money. So really, it is debt, not money.)

The whole point of what I do is to distinguish "money" from "credit" because credit costs more. If I were to adopt MZM it would defeat the whole point of what I do. And I, like the world's economists, would then fail to distinguish between money and credit.

January 10, 2012 at 6:09 AM
Greg said...

"Greg, you know your MMT but you don't know your pre-MMT economics. Economists talk of "final" spending (which counts in GDP, and GDP equals income) to distinguish it from "intermediate" spending, and to avoid "double-counting" when they tally up the GDP or the income of the nation. It used to be standard fare in economics 101."


Thanks Art, (I think!) but Im not sure even how well I *know* MMT.

One smart ass comment about your second sentence...... Thats why MMT came along because pre MMT economists have all sorts of muddled thinking about accounting........ final spending indeed! What a crock!

Here is how I view the final spending thinking.

Imagine a neighborhood of 1000 houses. House 1 pays the child of house 2 100$ to mow their lawn and they use a 100$ bill to do so. This continues until house 1000 pays the child of house 1 the SAME 100$ bill... it has come full circle. 100,000$ of activity has occurred and no household is missing any money. The 100$ bill ended up back in house #1 hands. When house 1 gets it back they take the 100$ to bank and put it in a savings account. If they were all honest injuns and reported 100$ of income there would have $100,000 of income made that day/week/period. 1000 transactions (sales) occurred for a GDP of 100,000 and all that happened is everyone now has grass 2.5 inches long. What was the final spending?

Now if this same scenario occurred with checks, each transaction would have been recorded within the banking system as transfers between accounts, 100,000$ of activity would have been recorded and each transaction would have counted as final spending, right? The outcome would be exactly the same in A and B but it sounds like you think it is accounted for differently.

January 10, 2012 at 8:29 AM

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