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Everyone can create money

from  Merijn Knibbe

Everyone can create money; the problem is to get it accepted.“ Hyman Minsky

Summary. Central banks the world over publish sophisticated Flow of Funds data which shows who and how and, to an extent, why all kinds of money are created and used and if stocks and flows of debt and money are becoming a threat to stability. Institutional analysis of these data, which looks at different kinds of credit as well as at different kinds of money and using a grid which enables the economist to distinguish between different kinds of economic sectors shows that they can be used to gauge the (in)stability of an economy. Macro-economists have too often however only looked at crude aggregates of total money or even purged money from their models while analysis of credit is, in 2017, still wanting as the connection between all kinds of money and all kinds of credit is still absent from the models, even if a monetary sector is increasingly added to these models.

This piece benefitted from helpful remarks by Josh Mason and Diane Coyle.

  1. Introduction: the measurement of monies  

Money is measured by statisticians working at central banks. Or rather, some kinds of money are recorded by these statisticians. Others aren’t. Stamps can be a work of art (picture 1, super model Doutzen Kroes photographed by super photographer Anton ‘Joshua tree’ Corbijn).1

But stamps are not only tokens of art. They are money, too. Even when we use the restricted functional definition of money which can be found in most textbooks, which defines money as a store of value, a means of exchange and a unit of account, it is clear that stamps are money – including, nowadays, their own unit of account. But the question why it’s a means of exchange etc. is of course more interesting: we trust ‘the post’ to deliver our letters (dwindling market) and packages (increasing market). And to honor this implicit contract. And rightly so. Dutch stamps have for some years been their own unit of account but I can still use my Euro dominated ones which occasionally surface from the occasional drawer.  read more

  1. September 8, 2017 at 8:59 pm

    Terrific. Thanks

  2. rjw
    September 8, 2017 at 9:21 pm

    yes, agreed, very interesting and great links

  3. September 9, 2017 at 10:03 pm

    “Everyone can create money; the problem is to get it accepted“
    Hyman Minsky
    One statement but both true and false.
    It’s dependent on the definition of “MONEY”.
    YES, anyone can ‘create’ “Fictitious Money”.
    NO, “Genuine Money’ needs a real value already in existence to be exchanged.

    Quote Frederick Soddy (The Role Of Money) ” It is important to realize that whichever way it
    works it is a case for the bank of
    ” Heads I win, tails you lose “…”…(U)sually by some such lying phrase as ” Every
    loan makes a deposit ”
    (I feel for you and others in that you are not aware of being victimized.”
    As Soddy said,
    “Genuine and Fictitious Loans. For a loan, if it
    is a genuine loan, does not make a deposit, because
    what the borrower gets the lender gives up, and
    there is no increase in the quantity of money, but
    only an alteration in the identity of the individual
    owners of it. But if the lender gives up nothing
    at all what the borrower receives is a new issue
    of money and the quantity is proportionately
    increased. So elaborately has the real nature of
    this ridiculous proceeding been surrounded with
    confusion by some of the cleverest and most
    skilful advocates the world has ever known, that
    it still is something of a mystery to ordinary
    people, who hold their heads and confess they
    are ” unable to understand finance “. It is not
    intended that they should.”(The Role Of Money)

  4. September 11, 2017 at 1:21 pm

    Anthropologists and sociologists have pointed out that it’s not correct to see money as a necessary antagonist of nonpecuniary values. Instead, “the principle that everything has a price should be enlarged rather than restricted . . .pecuniary values are members of the same general system as the moral and aesthetic values, and it is their function to put the latter upon the market.” Advancement, lies not in disparaging monetary valuation but in assuring the moral regulation of money: “The dollar is to be reformed rather than suppressed.” (Charles Cooley, 1913. “Journal of American Sociology”) But Cooley’s outlook was exceptional. For most contemporary observers, the dollar is an invulnerable transformer, not a morally reformable currency. The prevailing classic interpretation of money absolutizes a model of market money, shaped by the following five underlying assumptions.

    1. The functions and characteristics of money are defined strictly in economic terms. As a qualityless, homogeneous, infinitely divisible, liquid object, money is a matchless tool for market exchange.
    2. All monies are the same in modern society. Differences can exist in the quantity of money but not in its meaning. Thus, there is only one kind of money – market money.
    3. A sharp dichotomy is established between money and nonpecuniary values. Money in modern society is defined as essentially profane and utilitarian in contrast to non-instrumental values. Money is qualitatively neutral; personal, social, and sacred values are qualitatively distinct, unexchangeable, and indivisible.
    4. Monetary concerns are viewed as constantly enlarging, quantifying, and often corrupting all areas of life. As an abstract medium of exchange, money has not only the freedom but also the power to draw an increasing number of goods and services into the web of the market. Money is thus the vehicle for an inevitable commodification of society.
    5. The power of money to transform nonpecuniary values is unquestioned, while the reciprocal transformation of money by values is seldom conceptualized or else is explicitly rejected. Unfettered by “objective or ethical considerations,” money is exempt from extra-economic “directives [or] obstacles.”

    But contrary to these assumptions, money is neither culturally neutral nor morally invulnerable. It may well “corrupt” values into numbers, but values and sentiment reciprocally corrupt money by investing it with moral, social, and religious import. We need to examine more carefully how cultural and social structural factors influence the uses, reasoning, and even quantity of money. What are the relationships of money as a medium of exchange and measure of utility to money as a symbol of cultural value? And in what ways do these relationships influence the ways we live our lives?

    • robert locke
      September 11, 2017 at 3:53 pm

      “What are the relationships of money as a medium of exchange and measure of utility to money as a symbol of cultural value? And in what ways do these relationships influence the ways we live our lives?”

      People who have lots of it are, in some cultures, e.g., the US, admired, or in others despised or even hated (France, the story is that people in France admire artistic achievement and that every French businessman is writing a novel, secretly, in order to win the Goncourt price, which is esteemed).

      • September 12, 2017 at 11:24 am

        Of all the ideas, axioms, systems, and artifacts homo Sapiens has invented (made up) over the last 12,000 years, money in my view infiltrates almost every area of human culture today. Only race and gender rival money in its influence on human ways of life. Money is equated with happiness, long life, and political/physical power. It’s seen as the universal solution for all problems, even death. The defining features of money are control, essential, universal, and elasticity. It can create any situation, is the basis of all culture, has no earthly limitations, and expands to fill any void for any actor. A pair of examples might help us see how money works in US culture today. The US is being pushed ever closer to fascism by media and private armies funded largely by wealthy Americans that have few friends, are not admired, or even liked by most, and loath the nation they are attempting to control. The Koch brothers, for example are part of a radical right-wing cabal that is distasteful to most well-balanced Americans. The influence of the Koch brothers stems solely from the enormous amount of money they control. A single metric is used to judge American corporations, the amount of profit (money) each makes for their shareholders. Everything else comes second, or lower.

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