Dirk Ehnts — The nature of the game: euro zone does not agree while unemployment rises again

French chartalism versus German ersatz commodity model based on running the central bank as if the currency zone were still on the gold standard, with the German view winning at present. Result? Unemployment rising in the EZ.

econoblog 101
The nature of the game: euro zone does not agree while unemployment rises again
Dirk Ehnts | Berlin School for Economics and Law

See also, Phelps on what is wrong with the West’s economies

Lord Keynes — Marx on the Necessity of Money being a Commodity

Interesting excerpts from Das Kapital, volume 3, on the nature of money. Marx understood the hierarchy of money, with metals as the apex of the hierarchy, toward which holders of money retreat in a credit crisis. Marx seems to have assumed that capitalism is based monetarily on commodity fetishism, therefore then

Even though the contemporary system is not a convertible system, there was a retreat into gold at the time of the recent crisis. In fact, I was recommending to friends that they sell riskier assets, especially equity in financial institutions, for gold after Bear Sterns, when it began to look like there could be a global financial crisis. It turned out to be a pretty good call.

But Marx apparently did not think that a capitalistic system could work with a monetary system without gold at the apex of the hierarchy, that is, credit ultimately exchangeable for metals as assets that are no one's liability. Of course, there would not be enough physical metal to meet demand in a real crisis, so the price of metal would be driven up.

Ironically, this view is now held by those who follow Austrian economists, and almost daily posts appear on Austrian economic blogs and at Zero Hedge with the warning that it will be anytime now. 

In fact, a goldbug friend just sent me such a link this morning so that I could partake of the easy money when gold blows off at any minute. Now I see that I should let him know that Marx preceded the Austrian economists in this view and congratulate him on being a closet Marxist.

Social Democracy For The 21St Century: A Post Keynesian Perspective

Marx on the Necessity of Money being a Commodity

Lord Keynes

Lord Keynes — Fiat Money Destroys the Labour Theory of Value

Simple reflection on how Marx understood the nature of money as embedded in his labour theory of value in Part 1 of volume 1 of Capital leads to this conclusion. 

Marx’s whole explanation of the emergence of money in Chapter 2 of Capital assumes that money must be a commodity. For Marx, as commodity exchange becomes developed and people produce things specifically for exchange, socially necessary labour time comes to determine exchange values (Marx 1990: 183–184), and the real value of commodity money arises not in the process of exchange but in the human labour expended in producing it (Marx 1990: 184–185). 

In Chapter 3 of Capital Marx argues that money can only be a commodity that is the product of labour with an abstract socially necessary labour value so that it can be equated with labour values of other commodities in exchange:

Social Democracy For The 21St Century: A Post Keynesian Perspective
Fiat Money Destroys the Labour Theory of Value
Lord Keynes

herrnaphta — Marxism and Monetary Theory: A Bibliography

Since reading David Graeber’s Debt last fall, I’ve become interested in the relationship between Marxist economic theory and the heterodox theory of money Graeber supports in his work. Graeber holds to a chartalist position, which argues that money is not, as the classic account in Carl Menger goes, simply the most salable commodity, but rather a symbol that has value because the state requires us to pay taxes in it. Though this theory of money dates back to Aristotle, today it has been developed into the body of theory known as ‘Modern Monetary Theory.’ 

MMT’s focus on the role of the state in making money gives it a very different emphasis from Marx’s analysis in the first three chapters of Capital. There, Marx argues for something quite similar to Menger, drawing an account of the way that a society based on commodity production has need for one commodity to serve as a universal equivalent. In other words, monetary theory appears to make for strange bedfellows. On one side, we have the neo-classicals, the Austrians, and Marx. On the other, the left-leaning post-Keynesians. What to make of all this? 

Personally, I’m pulled by the arguments of MMT. As I began researching what Marxists had to say on the subject, I was relieved to find a number of them arguing that value theory does not require commodity money, and that Marx himself in the later volumes of Capital appears to recognize this....

Marxist Marginalia
Marxism and Monetary Theory: A Bibliography
herrnaphta
h/t Rodger Mitchell at Chartalism

Mish — Greenspan and Gold

Tett: Do you think that gold is currently a good investment? 

Greenspan: Yes... Remember what we're looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.

Mish's Global Economic Trend Analysis
Reader Question on Greenspan and Gold: "No Fiat Currency Can Match It"
Mike Mish Shedlock

Simon Wren-Lewis — Money as Credit

Some of this will be familiar, although what was new for me (but perhaps not to followers of Minsky or MMT) - and quite challenging - was the idea that this could all be traced back historically to a misconceived view of money itself. (According to Martin, the 17th century philosopher John Locke has a lot to answer for.) The threads developed from the historical account of the origins of money are numerous. For example money as credit is inevitably social, and so its value is bound to be politically determined. In a financial crisis, when the size of debts begin to encumber the economy, it is therefore quite logical and natural to adjust the value of money to redistribute between creditors and debtors.

mainly macro
Money as Credit
Simon Wren-Lewis | Professor of Economics, Oxford University

This is really quite fascinating. According to his CV, Professor Wren-Lewis "began his career as an economist in H.M.Treasury.... His current research focuses on the analysis of monetary and fiscal policy in small calibrated macromodels, and on equilibrium exchange rates....  In 2002 he wrote one of the background papers for the Treasury's 2003 assessment of its five economic tests for joining EMU. He was also the principal external advisor to the Bank of England on the development of its current and previous core macroeconomic models. A long time advocate of Fiscal Councils, his 2007 proposal was influential in the formation of the UK‘s Office of Budget Responsibility."

And he did not really understand the basics of money and credit? I don't fault him for this. This entire institutional system, from education to government to finance and economics is blindsided.

A crash course in MMT for economists is sorely needed.

Lord Keynes — Wieser Advocated Fiat Money

Austrian factoid about Friedrich von Wieser preference for paper over commodity money in the interest of greater stability.

Social Democracy For The 21St Century: A Post Keynesian Perspective

Wieser Advocated Fiat Money

Lord Keynes

Matthew Berg — Was “Cigarette-Money” in World War II POW Camps a Case of Commodity Money Origination?

Perhaps the most convincing single example cited by proponents of the view that money is a commodity is the well-known use of cigarettes as “money” by Allied prisoners of war in Germany during World War II. Just six months after being liberated by the U.S. Army, former POW R.A. Radford published his famous article in the journal Economica, “The Economic Organization of a P.O.W. Camp,” describing how he and his compatriots had used cigarettes as a medium of exchange during their unpleasant stay at their not-so-idyllic Bavarian Stalag.

But as we will see below, there are some significant problems with the notion that cigarettes were really a form of commodity money which developed spontaneously in the way commodity money theorists suggest. In fairness to Radford himself, he recognized that “prison camp is not to be compared with the seething crowd of higglers in a street market, any more than it is to be compared with the economic inertia of a family dinner table.” But, as is often the case in economics, subsequent interpreters tend to underemphasize such subtle points as this. For example, in the view of prominent Austrian economist Robert P. Murphy, “there is nothing in Radford’s account that conflicts with the standard economists’ story about the origin of money.”

New Economic Perspectives
Was “Cigarette-Money” in World War II POW Camps a Case of Commodity Money Origination?
Matthew Berg

Lord Keynes — Bitcoin is no Great Mystery

Lord Keynes reflects on Bitcoin.

Social Democracy For The 21St Century

Bitcoin is no Great Mystery

Lord Keynes

Matthew Zeitlin — Sorry, Libertarians, History Shows Bitcoin Isn't the Future

As we consider the digital-currency phenomenon that is Bitcoin, bear in mind that there are, broadly speaking, two accounts of the origin and history of money. One is elegant, intuitive and taught in many introductory economics textbooks. The other is true. 

The financial economist Charles Goodhart, a former member of the Bank of England’s Monetary Policy Committee, laid out the two views in a 1998 paper, “The Two Concepts of Money: Implications for the Analysis of Optimal Currency Areas.”

Bloomberg | The Ticker
Sorry, Libertarians, History Shows Bitcoin Isn't the Future
Matthew Zeitlin

Here's a link to Goodhart's paper, The Two Concepts of Money.

Tim Murphy — Arizona One Step Closer to Using Gold Bullion as Currency

Bozo watch.

Mother Jones
Arizona One Step Closer to Using Gold Bullion as Currency
Tim Murphy

AFP— Iraq unearths 1,400-year-old gold coins

Iraqi archaeologists have found 66 gold coins that are at least 1,400 years old, officials said on Monday, adding that they hope to put them on display in Baghdad’s National Museum.

The artefacts, which date back to the Sassanid era that extended from 225 BC to 640 AD, will be sent for laboratory tests in order to confirm their authenticity.

The Raw Story
Iraq unearths 1,400-year-old gold coins
Agence France-Presse

Lord Keynes — My Posts on the Origin of Money

I have assembled a set of two lists of links and a bibliography below, as follows:

(1) my posts on the origin of money and the debate between David Graeber and Robert P. Murphy;

(2) some external links on the debate between David Graeber and Robert P. Murphy, and

(3) a bibliography on the origin of money.

First, however, I will give a quick summary of Graeber’s view on the origin of money in his recent book (Graeber 2011).

Social Democracy for the 21st Century
My Posts on the Origin of Money
Lord Keynes

Lars P. Syll — Krugman on Modern Monetary Theory

Somehow [Krugman] also seems to think the idea behind [MMT] is new and originates from economic cranks.... 

This is what [Knut] Wicksell wrote in 1898 on “pure credit systems” in Interest and Prices (Geldzins und Güterpreise), 1936 (1898), p. 68f:

It is possible to go even further. There is no real need for any money at all if a payment between two customers can be accomplished by simply transferring the appropriate sum of money in the books of the bank …

A pure credit system has not yet … been completely developed in this form. But here and there it is to be found in the somewhat different guise of the banknote system …

We intend therefor, as a basis for the following discussion, to imagine a state of affairs in which money does not actually circulate at all, neither in the form of coin … nor in the form of notes, but where all domestic payments are effected by means of the Giro system and bookkeeping transfers. A thorough analysis of this purely imaginary case seems to me to be worth while, for it provides a precise antithesis to the equally imaginary case of a pure cash system, in which credit plays no part whatever [the exact equivalent of Krugman's often used model assumption of "cash in advance"- LPS] …

For the sake of simplicity, let us then assume that the whole monetary system of a country is in the hands of a single credit institution, provided with an adequate number of branches, at which each independent economic individual keeps an account on which he can draw cheques.

Read it at Lars P. Syll's Blog | Docendo discimus
Krugman on Modern Monetary Theory

by Lars P. Syll | Professor, Malmo University

(h/t Anonymous in the comments)