Typography

In a previous post , I made the point that banknotes aren't Samuelsonian bubble assets , say like a chain letter or a ponzi scheme or bitcoin. Upon the dismantling of a central bank, each note has a senior claim on a central bank's remaining assets. Rather than being mere "oblongs of paper", as Samuelson described them, banknotes occupy the very top of the capital structure hierarchy, above stock and bonds. This quality of being "well backed" might be sufficient for notes to trade at a positive value in the first place, and also help explain subsequent fluctuations in the purchasing power of those notes. In this post I revisit these ideas. The process of dismantling a central bank would go like this. Imagine that the Reserve Bank of Fiji announces that it will wind up operations next week and recall all notes. Its assets consist entirely of Fijian dollar-denominated bonds. With the eminent end of Fijian dollars , the entire Fijian economy will have to quick...

Despite its odd denomination, the above is a genuine banknote. Ne Win , Burma's military dictator from 1962 to 1988 and the man pictured in the note, was convinced that his lucky number was nine. So he had notes issued in multiples of nine, including the forty-five and ninety kyat notes (which also each add up to nine 4+5=9, 0+9=9). But I'll get to this story later. This is a continuation of a post I wrote earlier describing how central banknotes aren't mere bits of intrinsically useless paper. The standard view among economists is that banknotes are bubble assets. Because they are intrinsically valueless, the fact that paper notes earn a positive value can only be explained by the fact that the market expects them to have value in the future, much in the way that a ponzi scheme or chain letter is perpetuated. This view goes back to Paul Samuelson ( pdf ), who described how a "grand consensus" might be arrived at whereby society could contrive to have "obl...

I've been playing the game of Settlers of Catan for ages. Over time I've gotten less cutthroat and more philosophical about the game. What I've come to realize is that Settlers is a great tool for both thinking about monetary phenomena and building different sorts of monetary economies. In this post I'll assume a basic knowledge of Settlers—if you haven't played the game by now, you're living on the moon. 1. Catan isn't a barter economy The first thing worth noting is that Catan is not a barter economy—it's a monetary economy. This might seem like an odd thing to say . After all, the trades that we see in a typical Settlers game are all commodity-for-commodity trades. To see why it's a monetary economy, imagine the case of autarky , or a Catan in which trade is prohibited. Here, players can only build structures using cards earned from tiles on which they have a settlement. The value of a lumber card in an autarkical economy is derived solely from ...

An Old Man and his Grandson , circa 1490. Domenico Ghirlandaio The title of this post comes from this Paul Samuelson paper. Paul Krugman mentioned the paper last week, as did a few others, including Bob Murphy and Garett Jones . Nick Rowe has brought it up a few times ( here for instance). So I trudged through it. Here are a few quick thoughts. The setup goes something like this. Samuelson comes up with a science fiction world in which there's a young generation and an old generation. There are no durable goods. So if the current generation can't save, how can it prepare for a retirement in which it can hardly produce anything? Retirement will be "brutish". On the other hand, what if they print "oblongs of paper" and  "officially through the state, or unofficially through custom, make a grand consensus on the use of these greenbacks as a money of exchange. " Then the current generation will be able to acquire some of these paper bits and excha...