Typography

One of the coining press rooms in the Tower of London, c.1809 [ link ] [This is a guest post by Mike Sproul .] The law of reflux thus assures the impossibility of inflation produced by overexpansion of bank credit. (Blaug, 1978, p. 202.). It is the reflux that is the great regulating principle of the internal currency; and it was by the preservation of the reflux, throughout all the perils and temptations of the period of the restriction, that the monetary system of these kingdoms was saved from the utter wreck and degradation which overwhelmed every paper-issuing state on the Continent… (Fullarton, 1845, p. 68.) If you want to understand the law of reflux (and you should), then think of silver spoons. The silversmith shown in figure 1 can stamp 1 oz. of silver into a spoon. If the world needs more spoons, then silversmiths will find it profitable to stamp silver into spoons. If the world has too many spoons, then people will find it profitable to melt silver spoons. Unwanted spoons wi...

1685 Guinea with the bust of James II ( link ) The guinea makes a fascinating story because its evolution reveals so many different monetary phenomena. It began its life in 1663 in the Kingdom of England as a mere coin, one medium of exchange in a whole sea of competing exchange media that included crowns, bobs, halfpennies, farthings, not to mention all the foreign coins that circulated in England, Bank of England paper notes, as well as the full range of portable property—like jewelery and art—and property-not-so-portable, say houses and land and such. If things had stayed that way, the guinea's life would be a boring one and I wouldn't be writing about it. But in the late 1600s the guinea crossed a line and became a very different thing. Rather than functioning as just one exchange medium among many, the guinea suddenly emerged as one of Britain's two media of account , the items used to define a nation's unit of account, in this case the £. Within a few decades it ...

Photo by Spencer Tunick , Netherlands 8 (Dream Amsterdam Foundation) 2007 [ link ] If short sellers are considered to be the Mussolinis of the financial market, then naked short sellers are its Hitlers. In this post I'll show that naked short selling isn't solely a hedge fund or equity market phenomenon. In fact, the good old fashioned practice of deposit banking amounts to what is essentially naked short selling, thus making staid bankers, and not hedge funds, the world's largest naked short sellers. This means that anyone who vilifies the naked short selling of equities must also be against the common practice of banking—a crack pot position if there ever was one. Short selling is when an investor borrows shares of, say, Microsoft, then sells those shares in the open market. At some point—either at the lender's behest or the investor's—the borrower will repurchase the shares in the open market and return them to the lender. A short seller hopes that the price of ...

The textbook definition of money is anything that functions simultaneously as a store of value , a medium of exchange , and a medium of account . This is the monetary triumvirate, and we need to get rid of it. The first problem with this explanation is that all goods and assets function as stores of value , some better than others. Items that can't 'store' value would be be worthless because their lives would be too fleeting to provide any utility. Even an ice cream cone serves as a store of value, at least for a few minutes. So if everything serves as a store of value, then money must be that peculiar good that functions as both a medium of exchange and a medium of account, right? Wrong. All valuable things function as media of exchange, or, put differently, they all have a degree of exchangeability . A head of cabbage is a cabbage farmer's medium of exchange, since he uses it exchange with a food distributor, and it also functions as one of the distributor's many ...

Having reduced the ECB's overnight target rate to +0.05% and the deposit rate to -0.2%, Mario Draghi confidently told those assembled at Thursday's press conference that the ECB wants to “make sure that there are no more misunderstandings about whether we have reached the lower bound. Now we are at the lower bound.” So it's official, according to its leader the ECB has run out of powder and can't reduce interest rate anymore. But that's simply not true. I figure that the ECB has at least a handful of interest rate reductions left in its arsenal before the true lower bound bites, especially given that it's now adjusting rates in smaller increments of 0.1% and not 0.25%. And if the ECB were to get rid of its pesky issue of €500 notes, it would have a whole extra round of reductions up its sleeve (more on that later). Shame on Draghi for claiming impotence when he actually has plenty of rate ammunition still left. The lower bound starts to bind when interest rat...