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Base money basics

Paul Krugman and Steve Randy Waldman both have a gift for writing. But when they write about base money their prose becomes fuzzy and vague, at least to me. Just like the writing of many market monetarists, by the way. I’ve tried to figure out where and why I lose track of all this writing. It turns out to be the concept of ‘base money’, as it’s used by these writers (or by me). The point is: there are in fact different kinds of base money and Krugman and Waldman do not really seem to differentiate between the different kinds. What’s the matter? Different organisations produce different kinds of money in our society. A (non-exhaustive) list:  

I. The government not only creates money but also produces the ultimate design: coins, made of copper, platinum, whatever, with names like Dollars, Yen or Guilder which serve, very important, as the template for the unit of account.

II. The central bank produces banknotes which the government accepts, by fiat, as payment by banks for coins at a 1:1 ratio (and as a means to pay tax debts).

III. The central banks produces bank reserves which can be used by banks to buy coins or bank notes from the government or the central bank (1:1, of course)

IV. Banks produce new deposit money but need to accept a new private debt to be allowed to do this. In a way, the private sector buys this (temporary) money by issuing (temporary) debt. This deposit money can be used to buy coins and notes from the banks at a 1:1 ratio and can be used to pay tax debts.

I+II+III = (base money), according to Wikipedia. The defining characteristic is that the government (including the central bank) produces it. This is, however, not exactly the same stuff as the money we use to buy bread and butter. IV is not included, for instance. And loads of base money are not owned by the private sector but by banks and do therewith not function as a means of exchange in the non-financial economy. The table shows the connections between base money and M-3 ‘exchange’ money, albeit in a somewhat stylized way (no explicit international sector, for instance). According to Austrian economists, deposit money owned by the government should be considered ‘exchange money’ too (good point) but this does not make too much of a statistical difference.

I’m continuously getting the impression that many and especially American economists do not make enough of a distinction between different kinds of (base) monies and especially between the stuff left and right of the red line. Left of the red line, everything is pretty interchangeable. Right of the red line, the same holds more or less (surely in the somewhat longer run). Not every kind of money can however cross the red line without a helicopter. An increase in for instance A5 does not automatically translate into higher posts right of the red line (‘financial capital’ is a phrase borrowed from the Bundesbank who used to use the German equivalent to define less liquid kinds of deposit money, i.e. some kinds of longer term savings). As I see it, Krugman and Waldman are only talking about E1:E3. And indeed, as Waldman states H1 might at the moment be pretty 1:1 interchangeable with E1 and E2 and E3. But as long as you can’t buy bread and butter with it and as long as the private sector has to increase its net borrowing to increase M-3, E1:E3 as well as H1 is not really the same thing as M-3 monies. But maybe I’m the one who’s confused.

Update: in the comments Bruce reminds me that in the USA it’s not the central bank but the treasury who prints bank notes (see the table). Which leads to a little less confusion.

Table 1. Different kinds of money shown by originating (blue) and owning (white) sector

Pong

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Categories: economics profession
  1. Keith Wilde
    January 16, 2013 at 12:03 am

    Very helpful analysis. Thankskwilde2

  2. BruceMcF
    January 16, 2013 at 1:00 am

    This may be due to some slightly greater simplicity of the system in the US, due to the dissolution of the Second Bank of the US and the period of wildcat banking, so that the Reserve Banking system was created in the US in the 20th century. The Federal Reserve therefore does not issue bank notes in the US. In the US, Federal Reserve Notes are produced by the Treasury, and tap issue when banks require to withdraw reserves in cash form. They then serve as reserves for meeting required reserve obligation when in possession of banks as an asset backing bank account money. So cash in the US is not, as of the early 1900’s, bank notes of the central bank, they are treasury notes authorized as worth $1 in reserves.

    In a Reserve Banking system in general, cash can flow back and forth between being money in circulation and being reserves backing bank-money. The fact that the cash is eligible for becoming reserves, aka monetary base, if deposited at a commercial bank is what makes the cash “base money” in circulation.

    • Merijn Knibbe
      January 16, 2013 at 8:06 am

      Thanks for the comment, which really took away a bit of my confusion (but, for your and his safety, don’t tell this to Jens Weidmann, boss of the Bundesbank). And you’re right about cash flowing back and forth…. but there is a fallacy of composition involved. As long as the government is not monetary financing its expenditure (or drawing down its deposits at the banks), the total (!) amount of {M-3 money plus financial assets} owned by the private sector (households, non-financial companies and the like) can only increase when this sector increases net borrowing from the banks (think about that…). Deleveraging will, in such a case, lead to a decline in {M-3 plus financial assets}, as somebody like Paul Grignon points out. There is a thick red line. The net flow of money across this line is, in the end, a decision of households and non-financial companies.

  3. January 16, 2013 at 10:21 am

    Well, “But when they write about base money their prose becomes fuzzy and vague”. Indeed the notions about “money” and its effects on the economy differs very much between different economists and economic schools. The monetary base is “highly liquid money”. Which means cash or short term assets which can be very fast converted to cash. Cash to buy something, and thus is (short term) relevant to inflation or deflation. Long term assets, or even derivatives, can also be converted to cash, but need some (time consuming) intermediate steps to be transferred. A lot of classical economists believe that thus only short term money is responsible for effects on the real economy while long term assets (and thus Banks own Business) does not play any role (except for BoB itself of course).

    But the last is proved to be nonsense by the actual financial crisis, as of course, if BoB gets in trouble, also the Comercial banks Business gets in to trouble. Especially as they are not departed from each other, as it was under the Glass-Steagall Act, which was finally canceled in 1999 (but was undermined much earlier).

    But the very vague theory about different “kinds” of money, which confuses more than it explains, one should go “back to the roots” to say some fundamentals of money.

    First: What is a Good? Any thing that can be an object of trade.

    Second: What is Money? It’s every gadget which enables someone to make a trade.

    It needs no big thinking to see, that both gadgets, goods or money, play a double role. A good can also be taken as money, e.g. “I give you five cows for your one car”, which means here cows and cars are both goods and money and vice versa. The same of course applies for money-gedgets, “I give you 5000 Dollars cash for your rice future derivative”. And not to mention that every deal between the four sample gadgets cash, cows, cars, derivatis are in principle possible.

    Indeed we have to consider the difference between virtual and real goods, and, virtual and real money. Real money is an exemption, e.g. gold coins are such a thing, mostly there is virtual money like cash (FIAT-money) or practically every long or short term assets are. Vice versa there are real goods like cars, but also Labor is a real good, but indeed virtual goods are today not an exemption: e.g. derivatives like rice futures, stock papers and so on which are characterized by the fact that they are some grams of paper with some color and written text on it. Worth for itself just some useless pennies, “worth” but may be even billions of dollars as assured by the state and its financial, judical and law enforcement agencies.

    The last encloses the whole problem with the whole of these assets in a national economy: regardless how, where, when and why some money (or assets convertible to money) is created, it is always an by law enforcement assured claim to real(!) goods. If there were created to much claims on real goods (which are indeed nothing much more than the actual(!) tradeble GDP) there are only to possibilities left: First, those who are responsible for the actual GDP, from workers to entrepreneurs, more and more lose their own claim on the products they created by themselves. Or, Second: If everyone who owns such claims wants actual to realize their claims, then hyperinflation will occure as prices have to rise exponentially to comply with the to much claims.

    Of course, the first possibility is tried first, which means stagnating or less incomes, more taxes to be transferred to banks, less public expenditures. The second stage ignites when the believe on the effectiveness of the first stage gets widely lost.

    Genreith.de

  4. merijnknibbe
    January 16, 2013 at 1:22 pm

    Dear Heribert, thank you for your comment. One remark: I do consider it very important and even urgent that, when some economists use the concept of base money while others use the concept of M-3 money (the European Central Bank!) the connection between the two is spelled out in an explicit way, even when this leads to rather complicated systems, to avoid misunderstandings. I also think that such a system might be used in an analytical way, but that’s of course open for discussion.

  5. January 17, 2013 at 5:48 am

    Forget coins and printed notes, Base Money is mostly the deposits made by banks into the Central Bank system. Heribert, I must disagree that this money is “highly liquid” since it will sit in the Central Bank until a borrower comes along and borrows from the bank that made the deposit. Even then only a small portion of the funds will be removed from circulation. All the day-to-day cash movement will be with vault cash.

    Base Money is only useful as a concept that verifies an economy has the financial strength to lend. Today, Base Money is growing in the Central Banks of the western world. This indicates these societies are in turmoil and the Private Sector is adverse to borrow even with extremely low rates. Base Money is a meaningless indicator for government finances since it has nothing to do with Public Sector finances.

    I think trying to arrive at a definition of Base Money beyond Central Bank deposits is a pedantic exercise, because a more inclusive definition does nothing to enhance the information available from using only the Central Bank deposit sum.

    • January 17, 2013 at 3:04 pm

      Please challenge and improve as I am but a fool that luckily has no real experience in this field therefore not influenced by “professionals”. Just applying logic and common sense to what is on the net.
      So, what is money ?
      Perhaps Frederick Soddy got something else right. “Money is the NOTHING you get for SOMETHING in order to get ANYTHING” (The Role of Money, 1926,1933)
      Simple and perhaps exact. Like E=mc’2 (read-M=S=A )
      The S (omething) is the total goods and services of the social group that makes up the
      Monetary Sovereignty.
      So what should the base be?
      That would have to be an amount in the fiat currency set at a certain time after considering what may be the value of all the goods and services of the entire planet.
      The A (nything).
      What if the USA were to set its monetary base at $1 quadrillion.
      That would be the numerical N (othing) set for 2013.
      That would be the self imposed limit of “goods and services” that this Sovereignty would be able to by “good faith and credit …” shall redeem. for A.
      N.B. A Monetary Sovereignty must be the one and only supplier of its currency.
      The total M is not owned by the MS, it is there for S to exchange for A.
      and “shall be paid”.
      So how does Soddy deal with private for profit banks (PFPB) and CREDIT EXPANSION ?
      Perhaps, Counterfeit made legal while We The People slept on our rights?
      Read More:
      How about some help, do a rewrite on “Justaluckyfool” Challenge , improve, correct a theory that could lead to prosperity and pursuit of happiness for all.

      http://bit.ly/MlQWNs

      AND MORE:
      Frederick Soddy,

      http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt

      THE ROLE OF MONEY. WHAT IT SHOULD BE,
      CONTRASTED WITH WHAT IT HAS BECOME By FREDERICK SODDY

  6. January 17, 2013 at 5:46 pm

    Hey Lucky, first don’t hit the ENTER key at the end of sentences.

    Frederick Soddy started the right discussion, but there is no absolute Money Base. First, money can not be created out of air by an individual or a country. Therefore, to assume money originates at the printing presses of the Treasury or as an electronic notation in a bank account is incorrect. Money is the equivalent of all earnings less the value consumed. Money is not the equivalent of goods and services, but the value of work. Money begins as earnings. Money can grow, but only through work. A good investment decision can create new money.

    Money printed by the Treasury or Fed is nothing until someone does some work to make it real. In most cases this is through a loan process, but if there are few borrowers the Fed and Treasury “printed” money just builds up like now. To learn more read my book, “The Rule of Money,” available from Amazon in mid February.

    • January 17, 2013 at 8:50 pm

      Thank you for your repy, as well as your assistance on writing.
      Isn’t it possible for the Federal Reserve Bank to “QE” $500 trillion to purchase assets (any present bank loans) that are returning interest. Take those assets, modify them at 2% for 36 years thereby creating a stream of revenue for the US Treasury of $5.5 trillion per $100 trillion per year?
      As for “Money is not the equivalent of goods and services,” How do you explain how someone can ask that their money be redeemed for any service or goods that are not manufactured?

      • January 17, 2013 at 9:34 pm

        The Federal Reserve is the same as any bank. They can only spend the money they have on deposit. The Fed can not create money for their own use. But through fractional lending they do allow private banks to loan more than the private banks have on deposit. They have not made a rule allowing the Fed to do the same thing.

        As for spending the U.S. government has made laws that money must be accepted for the purchase of goods and services. It is not equivalent, because the market can adjust pricing.

      • January 17, 2013 at 9:45 pm

        “The Federal Reserve is the same as any bank.” Please explain to me, “QE3″ (Infinity).
        The Fed is presently “spending” , buying $40 billion worth of MBS’s from the private for profit banks every month for as long as they feel it is necessary. They are not issuing any t-bills so there is no “deficit spending”, Where are they getting that $120 billion so far?
        How can they continue ?

      • January 17, 2013 at 10:39 pm

        When the Fed purchases MBS from private banks they move deposited money within the Fed to the accounts of the private banks. In other words, the Fed uses their deposit base to purchase assets (MBS). This is exactly what the Fed does when they purchase T-bills from private banks to add liquidity to the economy. In both cases the opportunities to use fractional banking techniques are enhanced. Last I looked the Fed had about $1.2 trillion dollars in liquid assets. They can not purchase more MBS than their deposit base of dollars. Their deposit basen will probably grow as banks more deposits, but that is not a given.

  7. January 19, 2013 at 12:41 am

    Rand (any relative to Ayn?), you should try actually reading the book Lucky (yes!) has chanced on and been recommending: Soddy’s “The ROLE of Money”.

    As another scientist I reached Soddy’s conclusion independently: the money base (whatever it is) is not zero but negative, in that when we buy something we become indebted to our predecessors for real wealth (not money) already created. Even if we personally eventually earn more than we owe, the overall value of money is negative. One doesn’t need to know a numerical value for that to be physically true.

    The point, though – and this applies as much to Merijn as to Rand – is that one cannot define ‘money base’ without first defining ‘money’ and ‘base’, both of which involve both words and numbers, and different ways in which these can refer to reality. The opening chapter of John Lyon’s “Semantics” Vol 1 distinguished ‘types’ from ‘tokens’ of objects, and these from the objects (or groups of object) they refer to. The mathematicians who wrote “Algol 68-R User’s Guide” similarly, in their first chapter, distinguished ‘variables’ from ‘values’ and ‘values’ (e.g. quantities) referring to particular objects, or summations of some or all of a given type of object. In semantic terms, then, ‘money’ and ‘base’ refer both to type (generic) concepts and to tokens in whatever form or denomination (be it $1 notes or Lucky’s $100 trillion account entry). In mathematical terms a numerical base is 0 (zero), i.e. a token, but in practice (as when statisticians simplify calculations by reducing sample values to variations about an approximate norm) it may refer not to a real value but to a variable. In these terms (much more fundamental than economic accountancy) Merijn’s understandings of ‘base money’ refer to tokens, at different levels, of values which may be at any level. Soddy’s refer to the meaning of a monetary graph whose base is being assumed to be zero but in fact refers not to a money token but to the real value of what we already have, without which money values have no real meaning.

    It seems to me that unless you guys get yourselves outside the economic rat-cage and do some intelligent reading about the information processing tools you barely notice you are using, this debate is going to get nowhere. Algol 68R is available at http://www.fh-jena.de/~kleine/history/languages/Algol68R-UserGuide.pdf . Check out Lyons’ textbook on “Semantics”, but I’ll transcribe the bit I’ve referred to if anyone needs that.

    • January 19, 2013 at 4:16 pm

      Dave, I must admit I am somewhat skeptical of books written during the first three decadess of the twentieth century. I have enough trouble keeping up with books written in modern times.

      I am impressed how quickly and succintly you stated the numerical base is zero. As a lowly Economist and Statistician who often works with Complex Numbers, as you know zero is defined as “purely imaginary.” I should think before we get into this tangential discussion of the place of mathematics in Economics, I should admit my bias that Economics is too dynamic to be a science. The rigidity of numerical constructs just does not fit well in predicting human behavior. I much prefer Behaviorial Economics and simple counting.

      Nevertheless, let me challenge you on your definition of money. I see money as a concept. Physical money is no more than a voucher for work. It is an object that represents a certain value defined by the work completed to earn it. Therefore, the idea that the bills a government prints (sometimes defined as Base Money) is meaningless. This is verified by the reality that this government money does not leave the Treasury in most countries unless it is earned or stolen. Also, note the value of money becomes a function of work.

    • January 20, 2013 at 10:48 pm

      I gather Rand hasn’t tried to get his head round Algol68, either. If Soddy and Keynes intentionally escape his skepticism about “books written in the first three decades of the twentieth century”, that’s good. However, world-changing insights occurred in atomic, logic and communication science around the turn of the century, and it is hardly fair to expect the writings of pioneers to be fully mature. Their value of these writings now, much like that of my own experience of pre-integrated circuit computing and control, is that they record insights since obscured by generations of technological, mathematical and journalistic interpretation.

      So, Rand, I’m only a humble scientist with a background in early electronics, who happened to become a pioneer in the experimental development of general purpose information processing from computing and so developed an interest in the development of ideas like Complex Number.

      I enjoyed your definition of zero, but the set theoretic definition has numbers as denotations of sets and zero as the empty set. What you may not know is that electricity, before the discovery of electrons, was defined positively in terms of ionised atoms; thus by a historical accident, electrons – the usual form of electricity – are labelled ‘negative’. Likewise with ‘imaginary’ numbers. What we call ‘positive’ numbers have been used for counting since antiquity. The debits and credits of mathematically outdated economists are still both counted in ‘positive’ numbers (hence their openness to the banker’s fraud). The soundness of ‘negative’ numbers in terms of the logic of the operation of inversion was only established by de Morgan in the 1820’s, and that of ‘imaginary’ numbers by Galois rotations in 1830. However, the relations represented by complex numbers already existed in the light waves generated at the Big Bang, whereas the simpler types of number are abstractions generated by us. In retrospect, therefore, we might well have called ‘complex numbers’ real and our abstractions ‘imaginary’.

      It’s bed-time and I’m getting to old and slow to pursue this further. Let me just point out that I’d agreed money was a concept, but not JUST a concept: it is a physical object with information content and a variable meaning. This may be true, false or null and of type ‘program’, type of program, type of variable and type of value. A program is information which, when interpreted by a computer or brain, causes these to change their own action to that indicated by the program; this is its meaning, and that referred to by the concept, and increasingly indirectly by the variable and its value. If the value of the variable is true then the program will do what is intended by the concept; if false (and the falsity is not detected and corrected), an unintended sequence of actions will be initiated.

      • January 20, 2013 at 11:51 pm

        davetaylor1, thanks for your reply. Just a little more help, please.
        quote,”Let me just point out that I’d agreed money was a concept, but not JUST a concept: it is a physical object with information content and a variable meaning. ”
        If “money” had any real physical properties, how could it be exchanged without losing its mass? I feel Soddy meant that it is “NOTHING” meaning of no mass. Just a record that doesn’t have to be written or spoken until what ever the physical sign of that money (fiat currency) is called to be redeemed. The fiat currency is the “kiss” of “love”.
        A physical representation of ‘money’.
        Money has no mass, it representative does. But please forgive a fool if incorrect, for as I read your comments, Ido so with a hope for a profound response.

      • January 21, 2013 at 9:45 am

        Good morning, Lucky. I’ll try.

        Perhaps the first point to make is that Soddy was a little in advance of Shannon’s realisation that switching circuits were performing logic, from whence his distinction between information capacity and meaning and my own formula that “things represent themselves”. Energy, as usually understood in physics, is not only conserved as massless motion but the motion is meaningful: it has direction as well as quantity, and the inverse of the direction points back to its source or last change of direction. Following Einstein, when conserved in the form of mass it must be pointing back to itself, i.e. circulating (with its path 0 representing 1 bit of matter!) , incidentally generating magnetic forces and thence the complementary particles from which the informative and actively meaningful structures of atoms, banknotes and humans etc are made up.

        The net result of this is that energy, initially radiating in all directions like light from a lamp, is in matter conserved locally in informative bits which, locally, meaningfully interact to form meaningful structures and relationships. Thus Soddy’s NOTHING can be interpreted both as no mass and no meaning, and since banknotes evidently exist locally, and continue to exist when exchanged for, e.g. food, it seems to me the first of these is not what he is intending, However, as you say, the information it carries has no meaning until is is (so to say) “cashed”, when the question arises as to whether the meaning it does convey truly represents the action it initiates. But actually the bank note, despite what it suggests – that it carries value, or is a store of value – initiates nothing; it is we who initiate actions depending on how we interpret it. The ‘thing’ represented by money being value, it seems to me Soddy’s ‘s NOTHING means NO VALUE.

        Sorry this is a bit “wonkish”, but programmers soon learn that computers do what you say, not what you meant to say.

      • January 22, 2013 at 1:29 pm

        “The ‘thing’ represented by money being value, it seems to me Soddy’s ‘s NOTHING means NO VALUE.” DT1.
        But then How do you get “NO Value” for something (“Value”) before you can get anything(Value). S=Value,M=S; therefore M must equal Value.?
        Soddy does state that “Nothing” represents the total “Something” of that social group.
        Thank you for the dialog (due examination).

      • January 22, 2013 at 8:59 pm

        “Soddy does state that “Nothing” represents the total “Something” of that social group.”

        I’m not making sense of this out of context. A section title reference would help.

        Soddy’s epigram is easier to understand if you replace the variables with examples, bearing in mind the point of it is to deny the doctrine that money is valuable in itself. “Money is the nothing you get for your work and/or title deeds if you want to get a house”. That the seller of the house accepts the NOTHING is down to trust in the system, not the value of the money.

  8. January 19, 2013 at 7:03 am

    Dear Dave et al, I’m glad that I didn’t call it a “rat cage” but “The Box” would suffice, eh? Now, Dave, while I appreciate your penchant for technical competence, you over looked the real ROLE of the concept of “real value” and basic value. Until we realize that the concept of value is an artificial, arbitrary mental construct, there will be no end to all these sophomoric debates about more elaborate fabrications of the “dismal” pseudo-science (largely unmasked by economist emeritus Manfred Max-Neef). For a broader, deeper coverage of the Role of the concept of value and ethics, go to my blogsite and review the sections & pages on economics & alternatives

  9. January 19, 2013 at 7:12 am

    PS: The only truly functionally valid definition of “money” is: 1. A system of cultural exchange, 2. A systematic abstraction of barter for the sake of convenience, 3. A system enabling fair and convenient economic transactions, interactions, and processes mediated by disinterested parties for the good of all participants.
    Anything less is a sham and/or a scam designed to rip off the gullible. Rite?

    • January 19, 2013 at 4:28 pm

      Michael, see my reply to Dave. I agree with your valuation of money comments. You are absolutely (I couldn’t resist) right that the value of money is subjective. I also like your “definitions” of money, but they are not definitions. They are explanations of how money is used. The definition of anything should depend on the concept the word or number applies to. The physical object or how it is used follows the definition. This is the problem with defining Base Money. Once a concept of what it is going to be is established, it is very easy to define.

    • January 19, 2013 at 4:35 pm

      Davetaylor1, “… you should try actually reading the book Lucky (yes!) has chanced on and been recommending: Soddy’s “The ROLE of Money”.
      OMG, could it be. My tree is out of the forrest?

      Davetaylor1, “As another scientist I reached Soddy’s conclusion independently: the money base (whatever it is) is not zero but negative, in that when we buy something we become indebted to our predecessors for real wealth (not money) already created. Even if we personally eventually earn more than we owe, the overall value of money is negative. One doesn’t need to know a numerical value for that to be physically true. ”
      **Great.** Isn’t that saying that money is the physical (when written) representation of any goods or services (anything of value, exchangeable) that SOMEONE in that social community is willing to give up in order to get ANYTHING.?
      Davetaylor1,”…. Soddy’s refer to the meaning of a monetary graph whose base is being assumed to be zero but in fact refers not to a money token but to the real value of what we already have, without which money values have no real meaning.”
      **Great** But shouldn’t that base “of what we (the social community) already have” also include goods and services that can be produced from existing wealth not yet recorded?
      Example. What is the monetary value of massive mega mega watt Hydrogen Energy production plant?
      What if…? We were to consider the USA a Social Government Business (SGB). 2013 CEO, Pres. Obama, Board of Directors, US Congress and the Supreme Court. This business is capitalized by the goods and services of its owners, the people of this union.And based on 2013 evaluation of $1,000 trillion these shareholders have given their corporation the goal NOT to maximize profits but rather “to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”?
      ***I beg all MMTers to challenge this as well as any different ideas, not only to improve but to also to discover a true path to fulfill the GREAT SOCIAL GOAL that is the reason for the creation of this great Union.
      As Einstein said,”Keep it simple”. and “”We cannot solve our problems with the same thinking we used when we created them”. We need only to change (read CHANGE) the goal of our government from that of maximizing profits for private for profit banks to that of prosperity and pursuit of happiness for We The People.
      Please,seek prosperity for yourselves and your children, and ” “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama

  10. January 19, 2013 at 7:06 pm

    Lucky, you are confused about money, because you want to make it a thing. It is not. It is a concept. It is like the “grace” of God. There is an endless supply and the quantity at the start is just as meaningless as the quantity today. What is important just like the “grace” of God is that you believe it has value.

    Value is an entirely different discussion. Remember we are trying to define Base Money, not the value of Base Money. And I am stating you can define Base Money however you want since it is just a concept. It is not a thing.

    • January 19, 2013 at 7:47 pm

      Absolutely agreed, “Money is a concept, a faith. But the written or verbal expression of this “concept, faith, ‘NOTHING’ ” is any physical item that enables people to transact any
      physical transfer. Perhaps that is why all currency must be fiat, even pure gold alone can not express the totallty of the entire conception. Question could money be ? “The concept of “All that is created ” “The NOTHING (a conceptional portion of all that is created and available for distribution) that you get for the SOMETHING ( a real portion that you possess) in order to get ANYTHING (that portion you want or need).
      You know, like a kiss is to love; no matter what its called,a rose is….

      • January 19, 2013 at 9:28 pm

        Lucky, you have just zoomed by my intellectual space station. You are not the first, but I can’t keep up. I wish you well on your journey.

      • January 20, 2013 at 4:55 pm

        Thank you for your reply, I sincerely appreciate it because it can help me to understand where I may be going wrong. If I am not able to explain something correctly so that all can understand, how can I request “challenge , improvement, and then endorsement”?
        Allow me to try again. Money is a concept, an idea. It is, to use a popular term “created out of thin air”. When a Monetary Sovereignty issues (prints, or keystrokes on a computer) its currency, be it metal, ink, token or fancy colored paper it becomes a physical means to count, exchange, distribute “money”. Perhaps if we were to ask what does sovereign currency equal could we say, it should be “all the wealth of the sovereignty”?
        This is an attempt to explain Soddy’s definition, “Money now is the NOTHING you get for SOMETHING in order to get ANYTHING”.
        Please, you are in great company. Soddy wrote “The Role of Money” in 1926,and 1933 and it still “zoomed by my (almost all) intellectual space station(s)
        If you have a few years left, try it . join a large crowd::

        http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt

        THE ROLE OF MONEY-WHAT IT SHOULD BE, CONTRASTED WITH WHAT IT HAS BECOME.By FREDERICK SODDY ; Nobel Laureate ..

      • January 20, 2013 at 6:17 pm

        Lucky, I have Soddy on my to do list. I have a lot of books on my bookshelf, but I assure you I will read Soddy. I assume when he refers to money as nothing he is referring to fiat currency which according to intrinsic value is nothing. When he refers to something he is referring to the exchange of money for a product, and when he refers to anything he is refencing the fact money can be used to obtain virtually anything. Nothing in that description that I disagree with.

      • January 20, 2013 at 6:59 pm

        Thank you again, I honestly feel that you have helped me improve .
        Please if you could, READ “THE ROLE OF MONEY” first.
        I don.t get the thermodynamics part but what he says about banks , lending and money , I find that no matter what I read Frederick Soddy stands tall.

        http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt

        Thank you, and a gigantic thanks to “Real-World Economics” for allowing “voices” to be heard.
        May God (read as improvement received-“Invisible Hand”) continue to bless America.

  11. January 20, 2013 at 5:06 pm

    PS. To Rand McGreal, I, “Justaluckyfool” really should disclose I do not believe I “zoomed pass your intellectual station”,
    rather that I may not have even reached it because of my poor communication skills.

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