Typography

Over at the Free Banking blog , Kurt Schuler has two good posts on where to draw the line between money and other assets. While Schuler likes to differentiate between the monetary base (deposits at the central bank + currency) and other assets, he points out that there are a number of other popular spots to scratch out a line. The monetarists, for instance, settled on M2. I seem to recall that in America's Great Depression , Murray Rothbard let the cash surrender value of life insurance policies slip over the line into money supply territory. There are a thousand-and-one places to draw the line. Schuler notes that rather than drawing a sharp line between money and other assets, one can also recognize a spectrum of "moneyness." Anyone who's read this blog knows that I'm amenable to this idea. Before we can ask where do we draw the line? we need to ask how do we draw the line? . Either treat money as a set of distinct goods, or treat each good as more or less m...

In between my more practical posts, once every week or so I'll do something on the idea of moneyness . Economists have known for a long time that the concepts of uncertainty and money are intimately intertwined. George Costanza knows this too. He holds a bunch of cash to deal with all eventualities... until his wallet blows up. I'll show how we can just as easily replace money with moneyness in this two-step with uncertainty. Uncertainty is an uncomfortable feeling one endures when thinking about an unforeseeable future. One of the ways to shield oneself from uncertainty is to devote a certain portion of one's portfolio to "money" – dollar bills, bank deposits, and such. Because these money items are liquid, it will be relatively easy for their holder to offload them in the future should some unanticipated eventuality arise. Holding money therefore alleviates discomfort about the future. This is the same sort of service that a fire extinguisher provides. Though ...

David Glasner recently posted on the economist William Hutt and his book A Rehabilitation of Say's Law : Hutt’s insight was to interpret Say’s Law differently from the way in which most previous writers, including Keynes, had interpreted it, by focusing on “supply failures” rather than “demand failures” as the cause of total output and income falling short of the full-employment level. Every failure of supply, in other words every failure to achieve market equilibrium, means that the total effective supply in that market is less than it would have been had the market cleared. So a failure of supply (a failure to reach the maximum output of a particular product or service, given the outputs of all other products and services) implies a restriction of demand, because all the factors engaged in producing the product whose effective supply is less than its market-clearing level are generating less demand for other products than if they were producing the market-clearing level of output...

I didn't comment much on the great debt debate, stirred up a Krugman post called Debt Is (Mostly) Money We Owe to Ourselves , but followed it quite closely. Nick Rowe taught me ( here , here , here , and here ), and Bob Murphy clarified ( here , here , here , here , here , here , here , and here ), that present generations can indeed take resources from future generations via debt issuance. I also learnt via Daniel Kuehn here and here that if you use a very unintuitive definition of "generations", than this is not the case. Basically, you can swap the meanings of terms to argue your way out of a tight spot. My comment is from a Murphy post : I’ve learnt that the method by which one aggregates individuals into groups, and the labels that one attaches to such groups, can have an important influence on a debate’s ability to reach resolution. If people are aggregating differently, and using non-standard words for their categories, then the debate will degenerate into shouti...

Lord Keynes continues to squabble with the Austrians on the origins of money in two separate posts, one on Adam Smith and the other on Mises's regression theorem . The combativeness on the blog is unproductive, but I left a few comments anyways. On Smith: I don't really disagree with your claims, although I think you have to read the full Wealth of Nations in order to appreciate Adam Smith's theory of money. For instance, you are quoting from book 1 chapter 4, but Smith also has a very interesting (and much more extensive) chapter describing the complex workings of the system of bills of exchange, so he was by no means focused on gold and silver as money (See book 2 chapter 2). In this way he was different from Menger, who never discusses credit. Like Henry Dunning Macleod (who I see someone has already quoted), Smith was comfortable with credit as money.  The existence of Henry Dunning Macleod, as well as George Berkeley and James Steuart, disconfirms the thesis that clas...