Home > Uncategorized > Changing the money meme

Changing the money meme

Scientific economics needs more memes: short statements which capture the imagination and stick to the mind of lay people as well as economists. One of the well known memes of classical and neoclassical economics is the definition of money:

Money is:

* A means of exchange
* A store of value
* A unit of account

As such, it’s not bad. But it’s incomplete. The unit of account and the means of exchange do not have to be the same thing. In the olden days, in the Dutch Republic (as well as elswhere), the universal unit of account was the Stuiver and multiples thereof, like the Carolus Guilder of twenty Stuiver. While the means of exchange existed of a bewildering array of Pieces of eight, Guilders, Nobels, Thalers and whatever and sometimes, especially before 1650, even of products like rye which were used to pay ‘monetary’ rents. It’s good to make a clear distinction between the unit of account and the means of exchange! However – this meme is (neo)classical as it implicitly understands transactions as isolated here and now events, without social or historical or political embedding or repercussions. We have to change it. One way to do this is, as sometimes already happens, to add a fourth dimension to the definition, stating that money also is:

* the standard of deferred payments

The debt contracts using the unit of account as the standard of deferred payments tie the individual actors of (neo)classical economics together and, as their balance sheets and projected liquidity statements change, also change the economic nature of these people and companies. This adds a time as well as a social as well as a political dimension to the definition. See, for a depressing example, this story about debt collecting in Coeffeyville, Kansas. Money makes the world go round. And in Coffeyville, debt makes it stop. Other examples are mortgages or commercial credit which open up possibilities but also come with risk. Any money meme should encompass this part of our monetary world.

 

  1. October 19, 2019 at 2:40 pm

    Economic textbooks rarely examine the role of money and finance , beyond the 3 simple definitions cited, As an information and systems theorist ,I view all currencies as information-based social protocols on various platforms , dependent on network effects , which determine their prices as a function of how many people use , trust, believe and speculate in them. Watch our TV Special ” The Money Fix ” on the politics of money -creation and credit allocation and see my ” Money is Not Wealth : Cryptos v. Fiats” all at http://www.ethicalmarkets.com

    • merijntknibbe
      October 20, 2019 at 5:36 pm

      We seem to be on the same page

  2. October 19, 2019 at 3:56 pm

    The standard definition assumes a monetary economy and it’s also biased towards price stability and wealth accumulation. I propose a much more anthropological definition. Money is:

    * A transferable token of reciprocity.
    * A competitive bid on things of value
    * A social promise to accept as payment

    Transferable token of reciprocity underlines the actual role of money in society: As a token for an algorithm that discovers cycles of value. Where a barter or a goods ledger would involve big loops or networks to balance, we use money as a token to discover these loops of value flow and make them emerge. Cycles of value are supposed to be fair, or reciprocal. The accumulation of money is an undesirable side effect.

    A competitive bid acknowledges that all sales are auctions. People show up with goods, other people show up with money, and the price emerges as a bid among them. Price stability, if any, is emergent. This definition also clears fallacies like indebting the future or not having enough money to pay for pensions. Having enough productivity in the future and giving the right people enough claim to it are the real problems.

    A social promise to accept, and relying on other people’s social promise to accept onwards, is what gives money its value. It’s a social dynamic that you can measure, for example how willing are people to accept a certain currency. The value of money is not inherent and doesn’t come from the law or from the value of any commodity that’s tied to the money tokens. If it does, for example in fiat-bank money or in the gold standard, it’s the weight of big actors making promises that holds up the value.

    I’ve been meaning to write this as a full article, let me know if interested.

  3. October 19, 2019 at 4:11 pm

    http://folk.ntnu.no/tronda/econ/andresen-phd-finished.pdf

    This links to a thesis which extends your meme nicely to an analytic framework. It’s ground breaking IMO.

    • October 19, 2019 at 4:54 pm

      Yes to this from the summary of Andresson’s thesis:

      “This thesis does not concern itself with issues like the balance between consumption and investment, or what type of investment, or with the foreign sector. The view is that if a nation’s economy (the “body”) is allowed sufficient and flexible flows of money (“blood”) to all its parts, it will “makedo”, and then one may choose somewhat different policies on top of that without ending up in serious crises”.

      The point I would like to make is that the size of a nation here is not defined. It can be one person – any person – whose economy can be so managed with the aid of a credit card.

      Ground breaking indeed. We need to put aside our differences and plant it.

      • October 19, 2019 at 4:56 pm

        Apologies. “Andresen”.

    • merijntknibbe
      October 20, 2019 at 5:37 pm

      Thanks! I knew about it existence, I’ll download it and will try to read it soon.

    • Craig
      October 20, 2019 at 8:26 pm

      Velocity of money is really just an indicator of “good economic times” even though that state is ephemeral and such description exists only within the rigged nature of the current monetary and financial paradigm. Money does NOT sprout a mind and decide to make prices rise. The two primary reasons for the economic vice of price and asset inflation are

      1) individual income scarcity and hence systemic business revenue scarcity that tempts commercial decision makers to raise prices in hopes of garnering more business revenue in that austere system and

      2) confusing freedom with chaos (which every economic perspective from ultra libertarian to MMT is guilty of) and thus not searching and finding a better, more beneficial alternative for all agents individual and commercial…to that rigged, austere and chaotic system.

      Hyperinflations do not occur without several disastrous prior circumstances have taken place and finally a compliant central bank simply prints and/or leverages up speculators who short the currency. Normal garden variety inflation has always been a smallish single digit percentage except during and after wars or cost inflation due to a major commodity’s price rise…which isn’t “monetary inflation” anyway.

      Retail sale is the end of the legitimate economic/actually productive process where production becomes consumption. That by definition also makes it the ending and summing point for any and all economic factors including of course price and asset inflation. Thus a high percentage, say 50%, discount/rebate price and monetary policy at that point and time will not only eliminate inflation it will beneficially integrate price and asset deflation into profit making economic systems, and accomplishes everything the leading reforms say they want which is more money/purchasing power for everyone and a system which does not get de-stabilized by inflation.

      Popping out of the abstract thrice removed fugue of economic theorizing and coming into present time to recognize the incredible significance and power of such a policy shatters the orthodoxies and confusions described above and enables us to cognite on the new paradigm we all are seeking. Discovering genuine ending, summing, factor expression and pivoting points is incredibly powerful both mentally and temporally.

  4. Craig
    October 19, 2019 at 8:01 pm

    The intention of this post is excellent and a correct mental strategy because memes are (hopefully) concise and conceptually pungent thoughts that taken together (hopefully) result in a new cognition…..like a new paradigm for instance. My paraphrased meme of “It’s the monetary parad economy not “a veil over barter” was: “Neo-classical economists ignore money, debt and banks because if they did they’d have to acknowledge that the money system de-stabilizes the economy.”

    Since then he’s taken up the very real and existential problem of trying to quantify energy and its effects on the ecology, no criticism of that particular line of research, but it perfectly dramatizes the intellectual sterility and lack of integrative pragmatism of the above monopolistic paradigm for inquiry. Of course if he had consulted the signatures of all historical paradigm changes he may have cognited on the wisdom of the new monetary paradigm of direct and reciprocal monetary gifting, and the incredibly powerful point in the economic/productive process to implement a monetary policy that would immediately invert individual and systemic monetary realities.

    Keen and everyone else here is actually wanting a new paradigm in economics. The problem is they don’t focus and think integratively enough on the paradigmatic level about the most potent and relevant factor in economics, namely the money system and its monopolistic paradigm of Debt Only. So here’s the meme for the day:

    “Study the signatures of historical paradigm changes, stupid.”

    • merijntknibbe
      October 20, 2019 at 7:30 pm

      Changing a paradigm is notoriously difficult. Keynes succeeded. The combination of Friedman, Lucas, Sargent and Prescott succeeded, even if only in theory and not regarding measurement. Keen however is changing the conversation.

      • Craig
        October 20, 2019 at 9:58 pm

        “Changing a paradigm is notoriously difficult.”

        Correct. At least up until one finds the correct single concept that transforms the pattern. Then its a relatively easy and straightforwardly rational process of aligning policy with the new paradigm changing concept.

        I’m sorry, while somewhat helpful, the changes you refer to are merely separate reforms within the paradigm/pattern of economics. Genuine paradigm changes are changes in the nature of the ENTIRE pattern.

  5. Craig
    October 19, 2019 at 8:31 pm

    Sorry, that should be:

    The intention of this post is excellent and a correct mental strategy because memes are (hopefully) concise and conceptually pungent thoughts that taken together (hopefully) result in a new cognition…..like a new paradigm for instance. My paraphrased meme of “It’s the monetary paradigm, stupid” is a meme attempt to focus economists on the deepest and most potent problem of all economics, namely the money system and its monopolistic paradigm of Debt Only. Even the best economists have this integrative focus problem.

    Shortly after Steve Keen successfully de-bunked DSGE and concluded that we live in a monetary economy not “a veil over barter” he stated in a video: “Neo-classical economists ignore money, debt and banks because if they did they’d have to acknowledge that the money system de-stabilizes the economy.” That was a nascent recognition of the need for a new monetary, financial and thus economic paradigm and Keen and other economists even shortly there after attended an event where they all emphasized the need for a new paradigm in economics. Unfortunately, and in no small degree due to the fact that the present paradigm for inquiry is Science Only, he never followed through with a study of paradigm changes and their signatures.

    Since then he’s taken up the very real and existential problem of trying to quantify energy and its effects on the economy and the ecology. No criticism of that particular line of research, but it perfectly dramatizes the intellectual sterility and lack of integrative pragmatism of the above monopolistic paradigm for inquiry of Science Only. Of course if he had consulted the signatures of all historical paradigm changes he may have cognited on the wisdom of the new monetary paradigm of direct and reciprocal monetary gifting, and the incredibly powerful point in the economic/productive process to implement a monetary policy that would immediately invert individual and systemic monetary realities…..and thus changed the entire pattern of economics.

    Keen and everyone else here is actually wanting a new paradigm in economics. The problem is they don’t focus and think integratively enough on the paradigmatic level about the most potent and relevant factor in economics, namely the money system and its monopolistic paradigm of Debt Only. So here’s the meme for the day:

    “Study the signatures of historical paradigm changes, stupid.”

  6. John Hermann
    October 20, 2019 at 2:30 am

    Money is also an entity that is acceptable to the government for the payment of taxes and other obligations.

  7. October 20, 2019 at 9:06 am

    Entering into the spirit of Merijn’s challenge from an information systems position akin to Hazel’s, ‘money’ is a word, and words, as Humpty Dumpty told us, mean just what we choose them to mean. Shades of Hazel’s encription! Merijn’s “scientific economics” (if such a thing exists) requires us to agree and commit to a meaning which describes what words do, which is to represent a meaning. They act as a token (Merijn’s first meme), can betoken a promise (her third) but don’t store value (her second). In fact the title Hazel offered us is a memorable negative meme:

    * Money is not wealth.

    As Ruskin put so many years ago now,

    * The wealth of nations consists in substance, not in ciphers.

    Cryptography again! But I agree with Craig: this blog is saying something very important. At Merijn’s proposed fourth meme I would happier with a ‘sign’ rather than a ‘standard’ of deferred payment; likewise with Pavlos’s three “money is…” as they stand. My own proposal is still rattling round my head as I try to find the best way of putting it, e.g. as one obviously ‘complex’ meme, or two:

    * Money represents credit worthiness and quantitatively a credit limit.

    Bravo, Merijn!

    • merijntknibbe
      October 20, 2019 at 7:31 pm

      Thanks, pondering the suggestions.

  8. October 20, 2019 at 12:31 pm

    Coming back to this, what I have in mind is the economy being an encrypted message for which we are seeking the key: the interpretation of ‘money’ which makes sense of it; with which all our different interpretations make sense. Hazel’s is true but doesn’t get us very far; Ruskin’s is true but is of the prelude to, rather than the substance of economics. Mine fits in with money being a word which can be recorded in accounts. Our credit card accounts have ,
    Andresen’s generous quantitative credit limit and keep us informed of how much of it we have spent, and to whom we are indebted for giving us real credit for what, who in turn by banking his receipts can can write off that much of his receipts by giving it us, as we can write off our debts by banking the credit given us for, e.g. work (not necessarily for a employer but in any case by a competent observer. That can in the first place be an automated process which writes off reasonable levels of expenditure). Pavlov’s ‘token’ makes sense but not in any immediate sense ‘reciprocity’, i.e. with a personal credit card our suppliers are not those for whom we work (token money spendable only in company shops having been made illegal in the early 1800s). In our civilisation at least (thinking of potlatch in North America) we don’t compete in giving, while the promise on banknotes to replace one form of money with another is by now an empty (not to say a fraudulent) one.

    But what do other people think of all this? Do their own favourite examples of money use fit when considered as instances of it?

  9. Dave Raithel
    October 20, 2019 at 2:16 pm

    Thanks for the link to the excellent and disturbing story re debt collecting in Coffeyville, KS.

  10. October 20, 2019 at 6:38 pm

    I think there is an important analytical distinction to be made what money is in the subjective eyes of its beholders, and what it objectively has to be for the system as a whole to function; so as _not be subject to_ systemic crashes. The fact that money is endogenous goes deeper than generally assumed in heterodox circles. Money is and remains the economy’s money and never becomes an unencumbered property of individuals to be withdrawn at will from the debt resolution process the economic system constitutes in its very being. The assumption that an economy exists, (statically) at any present, as accumulated and thus depletable positives that includes liquidity values, is incoherent in the face of every economic initiation being a booked debit entry to be dynamically resolved through credits and endogenously netting to zero, in order to fulfill the economy’s objective and thus exogenously located purpose. For a coherent analysis, any functional attribute of money therefore has to be in conformation with the latter.

    • Craig
      October 20, 2019 at 10:08 pm

      Not that monetary gifts won’t be accounted for, they will be, but the deep problem resolving nature of the paradigm changing 50% Discount/Rebate monetary policy at retail sale essentially takes the conventionally orthodox sting out of the necessity to “balance the accounts/books” which itself is a lingering mental attachment to now de-bunked general equilibrium theory. Just another transformational aspect of the new monetary paradigm.

    • October 21, 2019 at 10:45 am

      John, I’m with you on what you are trying to say in this, and it’s worth highlighting, but surely this is a subjective view of ‘money’? Love the “debt resolution” definition, though.

      “Money is and remains the economy’s money and never becomes an unencumbered property of individuals to be withdrawn at will from the debt resolution process the economic system constitutes in its very being.”

      Suppose the debt resolution to be resolved by transfers not of money but of credit, what, then, is to be the objective view of the money we physically see? If we restrict it to a withdrawal from our credit obtained from a cash machine, then the withdrawal will appear in our accounts but there can be no record of what we spend it on until we spend it. This can be automatically corrected however, when the vendor accepts it (as he would a discount voucher, Craig) in lieu of credit deductions for the items we indebted ourselves for when we bought them. No double accounting involved, just completion of a blank space in our own account.

      Money, then, would be objectively an advance of credit, representing a credit limit. I can’t see a neat way of saying this, but if you are advanced a £10 note then that limits how much you can buy with it. I must insist, however, that the real economy is not just the money side of it.

      • Craig
        October 21, 2019 at 5:34 pm

        Dave,

        As I said monetary gifts will be accounted for by enterprise as they are now without them…as sales….and after that is presented to the monetary authority they rebate the 50% discount amount back to the enterprise so they can be made whole on their overheads and profit margins. Simple, elegant and a benevolent and gigantic assist to both individual and commercial agents. The only difference perhaps will be that a new account will also be created to reflect the amounts rebated entitled….Rebates.

        The beauty of the 50% Discount/Rebate policy IS its strategic implementation AT the terminal ending point of the entire economic/productive process for every consumer product from a package of chewing gum to autos, homes etc.

        Monetary gifts still retain their debt nature as in legal tender making them perfectly accountable, but it enables twice as much money to enter the economy while simultaneously not only remedying inflation but implementing beneficial price and asset deflation. It’s a simple operation, a basic inversion the same as the inversion of the positions of the earth and the sun was the actual operation of the Copernican cosmological paradigm change, the inversion of nomadic wandering about the land to staying in one place and having a direct relationship with the land and one’s stock and having a direct relationship with god instead of being forced to participate in the church’s sacraments for absolution.

        Signatures, signatures. Heed them.

  11. ghholtham
    October 21, 2019 at 11:18 pm

    I’m glad everyone seems to know what everyone else is talking about on this thread because it’s all way over my head. What exactly is the problem we are trying to resolve? I don’t need a meme or an answer. Just tell me what the question is.

    • October 22, 2019 at 11:20 am

      Referring back to Merijn’s blog, “Scientific economics needs more [memes:] short statements which capture the imagination and stick to the mind of lay people as well as economists”. That’s an assertion, not a question.

      Merijn has chosen money as her paradigm case, giving and discussing examples of its definition. As I saw it, anyway, that turned her assertion into an invitation to do likewise: to ask ourselves the question “how do you think money should be understood, and why”? Craig, unfortunately, keeps wandering off the point, stressing the giving of money without saying clearly and concisely what he thinks money is, i.e. does.

  12. ghholtham
    October 22, 2019 at 12:25 pm

    I’m not sure it is productive to ask essentialist question about what money “is”. All societies above subsistence have means of facilitating transactions without direct barter. Once something is accepted in settlement of transactions it naturally tends to become a unit of account and, if you hoard it, a store of value. Stanley Jevons pointed out in the1880s that that was contingent and it would be notionally possible to separate those functions and deal with them in different ways. In a modern economy where transaction rely on changing book-keeping entries rather than exchange of physical specie, it is possible to ask questions about what “is” money but those questions are essentially semantic. The phenomena are what they are. We can define terms and study them without getting hung up on linguistic issues.
    The creation or generation of money as the medium that fulfils each of the three functions mentioned above is a process with real implications for resource allocation and income distribution. The “neutrality” of money a property of very simple economic models does not apply in reality. That means there are real issues to be addressed in the management of the monetary and credit system. I’m not sure that any of them are illuminated by agonising over the definition of money. But perhaps I’ve missed the point.

    • October 22, 2019 at 12:40 pm

      I think you have [missed the point]. We will never get anywhere while we get at cross purposes by not agreeing on the meaning of words like ‘money’. But perhaps you are happy with the way things are?

  13. ghholtham
    October 22, 2019 at 2:17 pm

    On the contrary we shall never get anywhere if we argue about semantics instead of analysing real phenomena. Define money however you like. What you don’t call money we’ll call something else. Essentialism has always been a philosophical dead end.

    • October 22, 2019 at 5:46 pm

      What do you know about philosophy! It is your mainstream economist’s logical positivism which has been the dead end. You lot don’t seem to have noticed the practical triumphs of the science of communication, like the computer and internet you used to send your email: based not on the semantics of conversations but on the logic of information capacity and the automation of error correction.

      http://www.math.harvard.edu/~ctm/home/text/others/shannon/entropy/entropy.pdf

    • Craig
      October 22, 2019 at 7:15 pm

      That’s quite right. What we need to do is take the fact that money is a damned good tool, and then use it to resolve monetary problems that will bring abundance and monetary freedom to all….and as a not so insignificant side effect enable us to rapidly begin both a bottom up consumer green product resolution to climate change, but also to fund the massive projects also necessary.

      Awaken to the new monetary paradigm of Gifting….and then get schooled in its possibilities.

  14. ghholtham
    October 23, 2019 at 10:29 am

    davetaylor I didn’t mean to start a row but arguments about what money “is” have never got anywhere. M1, M2 M5…, I concur of course that we have to agree on definitions but there is no “right” definition. The money/credit system is a real phenomenon; we can define terms in different ways and still analyse it. It is the analysis we should be debating not the definitions. Money is not a thing with fixed characteristics that we have to discover – that is essentialism.

    I read Ayer’s Language Truth and Logic ages ago and read some Carnap too. I was not a logical positivist then and have never been one since. Why did you think I was?

    And it is inaccurate to call me a “mainstream economist”. Just because a lot of economic theory is junk, doesn’t mean I have to accept any old junk criticism. The idea is improvement , not moving from one load of junk to another.

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