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 Would it make sense for Apple to peg its stock price at $1? If so, how would it go about doing this? From the perspective of shareholders, there's an advantage to a firm's shares being valued not only as a pure store of value but also as useful in trade, or as money. All things staying the same, the increase in demand that is created by the monetary usefulness of a share will ratchet up the multiple applied to a firm's earnings, resulting in a higher market capitalization and richer (and happier) shareholders. As long as the costs of making shares more moneylike aren't too high (I'll assume they aren't), Apple will prefer that its shares be ubiquitous and pervade all corners of an economy, much like a U.S. dollar note or a bank deposit. The problem is that people aren't fond of unstable exchange media (see here & here ). Bills and deposits tend to show low price variability. And because retailers keep prices sticky in terms of the unit of account, a $1...

You may know by now that the final revision of U.S. first quarter GDP revealed a shocking 2.9% decline while its mirror image, gross domestic income (GDI), was off by 2.6%. As Scott Sumner has pointed out twice now , the huge decline in GDI is almost entirely due to a fall in corporate profits. Whereas employee compensation, the largest contributor to GDI, rose from $8.97 to $9.04 trillion between the fourth quarter of 2013 and the first quarter of 2014, corporate profits fell from $2.17 to $1.96 trillion (see blue line in the above chart) This incredible $198 billion loss represents a 36% annualized rate of decline! A number of commentators have pointed out the difficulty in squaring this data bloodbath with reality. After all, Wall Street has not been announcing 36% quarter on quarter profit declines. Rather, earnings per share growth has been pretty decent so far this year. If earnings were off by so much, then why are equity markets at record highs? Why have there been no layof...

Santiago skyline This post continues on the topic of the separation of the medium-of-exchange function of money from the unit-of-account function. My previous post discussed how the medieval monetary order was characterized by both a medley of circulating coins and one universal £/s/d unit of account. This post introduces a modern example of medium-unit divergence: the Chilean peso and Chile's Unidad de Fomento . I'll explain how the Chilean system works and end off by asking some questions about the macroeconomic implications of this separation, specifically what happens at the zero lower bound . Like most modern currencies, the peso is issued by the nation's central bank; the Banco Central de Chil e. Local banks offer peso-denominated chequing and savings accounts. Chileans use these pesos as the nation's medium-of-exchange. They pay their bills with pesos, settle rent with it, and buy food with it. The differences between Chile's monetary system and those of ot...

The Telegraph's Willard Foxton writes that Silk Road, a venue where people exchange drugs for bitcoin, is in a recession of sorts. He blames this on higher bitcoin prices: Following the recent surges in the value of Bitcoin, people have been selling less and less, initially because the value of the Bitcoins was going up so fast people were unwilling to part with them; then, once the Bitcoin price started crashing, dealers were unwilling to part with valuable drugs for Bitcoins worth who-knows-what. I find Foxton's claim unlikely. Yes, in a regular economy, soaring demand for dollars may cause recessions because certain prices are sticky. But the bitcoin universe isn't a sticky price universe. Silk Road sellers will quickly reprice their product in order to convince buyers to part with their bitcoin. Buyers will modify their bids in order to convince sellers to part with their drugs. As bitcoin prices rise or fall, the real value of transactions in the Bitcoin universe sho...

I had an interesting conversation with Miles Kimball at his blog concerning his idea of splitting the Euro into a North Euro zone and a South Euro zone. This seems like a far more realistic solution than reintroducing drachmas, punts, pesos, and lira. Nevertheless, there are some thorny issues here which Miles says he will address in future blog posts. In short, a South Euro will quickly depreciate. Because wages are sticky, exports from the southern Euro zone will be relatively cheaper than exports elsewhere, providing a short to medium term boost to Greece, Italy, Spain, and Portugal. One concern here is that the continued circulation of North Euros in South Euroland, as well as the North Euro's continued use as a unit of account in South Euroland, would make those living in South Euroland highly cognizant of nominal changes and therefore less likely to fall prey to the degree of money illusion that is necessary to drive an export-led recovery. Of course, as Miles points out, hi...