On 21 May, at Asymptosis and at Angry Bear, Steve Roth wrote:
I’ve bruited the notion in the past that “money” should be technically defined, as a term of art, as “the exchange value embodied in financial assets.”
In the past, in other words, Steve has spread the idea that the definition of money should be such-and-so (as given in the excerpt above).
Maybe he has spread that idea in the past, and regrets it now. Or maybe he is continuing to spread that idea in his post of the 21st. I assume the latter, but let's leave the door open.
Roth:
In this definition, counterintuitively relative to the vernacular, dollar bills aren’t money. They’re embodiments of money, as are checking-account balances, stocks, bonds, etc. etc...
I think that's supposed to be a clarification. The list of financial assets creates an aura of familiarity. But forget the list, and focus on the statement: In this definition... dollar bills aren’t money. They’re embodiments of money...
That's his second use of the word "embody" -- and we're only three sentences in to the post.
So Roth says dollar bills aren't money; they're just a tangible or visible form of money... or the representation or expression of money. Dollar bills and all the other kinds of financial assets are not money, but are representations of money.
More words, less meaning.
Skip a sentence, and resume with the next paragraph:
If this definition is safe, then the stock of money ... equals the total value of financial assets. Forget the endless wrangling about monetary base, M1, M2, divisias, and all that. Add up the value of all financial assets, and that’s the money stock.
Another list. Forget the list. Roth is saying that financial assets are the money stock. Or possibly, that the value of all those financial assets is the money stock.
In a comment on mine, Roth writes:
One thing I'm saying is that financial assets=money is wrong. You keep saying I'm saying that, and I'm not.
So I guess he means it's the value of all those financial assets that is the money stock, not the assets. But money is not value, and value is not money.
It's like squeezing a balloon. For a moment it feels like you've got something. But squeeze a little tighter, and there's nothing there.
9 comments:
Randy Wray's distinction between money (unit of account, medium of exchange, and other functions) and money things, like notes and coin.
Chris Cook makes a similar distinction between accounting entries and money things. There are dollars in a deposit account but they are not dollar bills.
"So I guess he means it's the value of all those financial assets that is the money stock, not the assets."
Yes! Exactly right. "The exchange value embodied in financial assets.
"But money is not value, and value is not money."
By the traditional (muddled and incoherent "defintiions"), you are 100% correct. I'm saying that those definitions are the very problem. They don't make any sense, and they result in many or most of the messy and inconclusive arguments we find ourselves in.
Try on the alternative definition. I'm not saying it's certainly "right." Just that it's really, really working for me. Making coherent sense. I think it might for you too.
Nick Rowe once pointed out that his canoe is a store of value. More than once, maybe.
Value is in the eye of the beholder.
People who say 'printing money IS inflation' are concerned about the value in a dollar going down as the number of dollars goes up, as if 'value' has a well-defined and fixed volume, no matter how many pieces you cut it into. It's like cutting a pie into 10 or 12 pieces instead of 8. The value of each piece of the pie gets smaller, the more pieces there are. Isn't that a logical conclusion that follows from your nontraditional definition where money equals value and value equals money?
"So I guess he means it's the value of all those financial assets that is the money stock, not the assets."
Yes! Exactly right. "The exchange value embodied in financial assets.
Then the FED controls the money stock, the transmission mechanism is the market knowledge they will take financial assets from the private sector on to their balance sheet in exchange for reserves. The private sector will hold financial assets if they have the confidence the FED will accept them. The purpose of QE is to stabilize the money stock.
Steve Roth here. Just noticed: for some reason my comments are being posts as Oilfield Trash. I'm using the Name/URL option. Je ne sais pas...
Oh never mind.
"Isn't that a logical conclusion that follows from your nontraditional definition where money equals value and value equals money?"
No. Again, you're using both definitions in your logical construct, so contradiction is inevitable.
Steve:
Suppose we were talking about an economy that used cows as a unit of account and a medium of exchange. All prices are measured in cows, and people buy and sell everything else for cows.
Cows are not a *financial* asset; they are a *real* asset. But I would say that cows are money, in that economy, because they are used as money (as well as to produce milk and meat).
Why not just use the word "wealth" or "assets" instead, and distinguish (where it's relevant) between financial assets and real assets? Why use the word "money" for this purpose, when there's already perfectly good words that are already serving the purpose?
What's lacking in that cow example is the idea that money is an abstraction. Trading real for real is what happens in the absence of money. It's barter.
Money is an abstraction, a financial asset is a concrete instance of that abstraction, a recorded credit denominated in a unit of account.
Look at how commodity-backed currencies work in the real world. Under a gold standard, come to town with a nugget of gold, you have a valuable real asset. You don't have dollars. Take your golden nugget to the dollar window and the issuer will record a number of dollar credits at a rate set by the issuer of the dollar. A record that might be written in a ledger, stored digitally, printed on bearer paper or even stamped onto a disc made of gold.
The "money" is the abstract recorded credit from some issuer, no matter the medium used to record it. Ledgers, bits, paper and metal aren't "money" any more than parchment and ink are "law".
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