Wednesday, October 31, 2012


Is An Anti Austerity Alliance Possible, Part 2: Michael Hoexter: Naked Capitalism
Private Equity: A Government Sponsored Enterprise: Yves Smith & Nanea: Naked Capitalism

And One More Time, What Is Money?

(part 1) (part 2)

In the terms of double entry book keeping money is always and everywhere a contract binding a debtor to a creditor. When I possess a dollar it is my asset and a government liability: the US Treasury is the sole issuer of the dollar and every dollar represents a Treasury liability. Every dollar held by a non-government entity is an asset for its holder backed by the full faith and credit of the US Government, for whom it is a liability. When I purchase something with that dollar my asset is converted into whatever it is I have purchased and the governments liability is passed along to whoever sold me my purchase as an asset for them. The reason dollars are used to denominate trade within the dollar denominated portion of the world economy is that everyone who produces and exchanges within that system must pay taxes with dollars and expects the US Government to enforce its tax regime.

Double entry book keeping is a tool to keep track of the assets and liabilities of individuals and institutions that participate in money denominated exchange, but it also makes clear some underlying properties of monetary systems that are not intuitively apparent. A paper dollar or a gold coin are both fairly useless objects. What gives each its value, to the extent it has one, is that others expect it to port their exchanged wealth from one transfer to the next. When viewed this way, that gold has some intrinsic value seems a much less supportable proposition than that the coercive force of the US Government makes paper dollars valuable. That it will only accept the cancellation of its own liabilities as payment of tax both defines what a dollar is and convinces me to use it. So long as there is a US Government, it will be bigger than me and expect its taxes paid. Beyond that, in extremis paper is more edible than shiny yellow metal.

Saturday, October 27, 2012

What Is Money? Again.

(part 1) (part 3)

Money in a modern industrialized economy is what society, that thing Margaret Thatcher asserted did not exist, owes its constituent individuals. Some years later she followed up with this, they never quoted the rest. I went on to say: There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first. It’s our duty to look after ourselves and then to look after our neighbour. My meaning, clear at the time but subsequently distorted beyond recognition, was that society was not an abstraction, separate from the men and women who composed it, but a living structure of individuals, families, neighbours and voluntary associations.“ Ms. Thatcher's Neo-Liberal mythology not withstanding, we do not survive in the world through looking after ourselves first and then looking after our neighbors, we survive by participating in a world of man made institutions that organize our activities in ways that yield material living standards vastly beyond the reach, much less imagining, of families and neighbors not fortunate enough to have been born into vast industrialized societies of multivalent and complex institutions. To the extent that we survive with the aid of money it is this institutional environment from which we are drawing our sustenance.  


What Banks Contribute To GDP: Golem XVI
Gaming Taxpayers: Golem XVI
The Problem With Science: Do The Math
Keen On The Money Multiplier Myth: BusinessSpectator
Mollmann Residence: Wannenmacher + Moller: Contemporist

Monday, October 22, 2012

What Is Money?

(part 2) (part 3)

This seemingly simple question has been at the center of most of what I've posted in the last three years. Like the fractal properties of the waterline on a river bank, the closer you look at money the more infinitely complex it becomes. Like language or math, money is a projected system we've built around our inclination to abstract symbolic meaning from things. Like language and math it is a tool we created to solve practical problems in the world that once extant began its recursive feedback with that world restructuring our actions in it around the new definitions created by our own invention, money. Instinctively we value life, the things required to sustain life and the things within it that afford pleasure. Money is an alternate value system we invented to solve distributional problems with those prior values. But, like math or language, its universality as a system lends money a tendency to usurp those subjective, less measurable and older values and to substitute its own terms for those that preceded it.

The invention of money had the same kind of affect on our production and exchange of things as the invention of writing had on our production of myths. That is to say it decisively ended an earlier phase and set us on new and for the first time fixed foundations over which we continue to build. David Greaber's magisterial "Debt: The First 5000 Years" comes as close as the general reader probably wants to get to an historical understanding of the creations and evolutions of monies around the world. For our purposes here I'll focus on what money is here and now in early 21 century America, I'll focus on the fiat dollar. Since the final demise of the Bretton-Woods exchange rate system in 1971 the US dollar has been a floating fiat currency. This is to say it is a money backed only by the value created within that system of trade and commerce denominated with the dollar. This is very different from how fiat currency is popularly described as being backed by nothing. The productivity of the dollar denominated global trading system is at present the greatest economic achievement mankind has produced. It is something more than nothing, but what exactly is it?