Brian Romanchuk — Book Excerpt: Financial Assets Matter, Not Money

If we abolish money from economic theory, what replaces it? The answer is: financial assets. Although this might be viewed as a superficial change, there are important implications. In particular, the central bank can manipulate the amount outstanding of some types of financial assets, but it cannot control all of them. We end up with a more realistic view of central bank power. They no longer control “money” and hence all commerce, rather they are reduced to worrying about setting interest rates.…

This is short, simple to understand and very important for getting MMT, which deals with "financial assets" rather than "money." Financial assets appear on accounting statements, not "money." Understanding this removes a lot of confusion.

Bond Economics
Book Excerpt: Financial Assets Matter, Not Money

Brian Romanchuk

Brian Romanchuk — Released: Abolish Money (From Economics)!

My latest report - Abolish Money (From Economics)! - has been released in ebook format. (The paperback edition will be published within a few weeks.) The ebook is available at the same online booksellers as my previous books.

• Amazon.com link.
• Universal book link (books2read.com)

A big problem with conventional economics lies in integrating economics, which is concerned with the real or actual, that is, production, distribution and consumption of real goods, with finance, which is concerned with the nominal — money, cost, price, accounting, and financial assets.

The problem arises in economics as result of aggregation based on nominal value (costs, prices, etc.) without adequate consideration of the relationship of the nominal and the actual. The assumption is that this can be disaggregated by going back to journal entries to determine the prices of specific units and the number of units of various goods involved.

This is to treat money simply as a veil over barter, as conventional economists do, and to miss the role that money itself plays in the integrated economic-financial system owing to the specific dynamics of finance and the creation and use of financial assets along with real assets.

This approach is simplistic, as Keynes observed, and it leads to modeling that is not realistic enough to be very useless. In fact, the modeling can mislead, especially at junctures that are financially and economically crucial to a society.

It should be obvious that Brian is not calling for abolishing money but rather rethinking how conventional economists use the term as a key concept in economic modeling, in particular with respect to monetarisms in which interest rates are assumed to be determinative and monetary policy by the central bank rules. This is a failed approach.

Bond Economics
Released: Abolish Money (From Economics)!
Brian Romanchuk

Steve Roth — Thinking About “Assets” and Ownership

Purely “real” or nonfinancial assets have no such offsetting claims on other balance sheets. In theory, they represent direct claims on real goods.
That seemingly simple distinction, though, is far from simple when you start exploring it carefully.

To that end, consider the fundamental nature of “claims,” hence the nature and import of “ownership” and “property rights.” Full credit here to Matt Bruenig, who delivered the Aha! understandings for me on these topics — clear and (mutually) coherent definitions and explanations for concepts I’d been worrying at for years.

Mostly simply, ownership is an exclusionary legal claim. Ownership says you may have a picnic on your front lawn — which seems inclusionary, but that’s only meaningful because you may exclude anyone else from doing so. And you may invoke violence (farmed out to the police) to enforce that right of exclusion. As Matt has said so well, a modern ownership claim is best viewed as a violence voucher issued by government.

This imparts a decidedly sinister aspect to the lefthand side of balance sheets — a tally sheet of violence vouchers?…

So now to return, with that understanding, to the notion of real vs financial assets. In large, in aggregate, in the big national or global picture, both types of assets ultimately constitute claims on real goods. Someone holding zero real/nonfinancial assets but significant financial assets can make an immediate and successful claim on a new Maserati — a very “real” good. Everyone else is excluded from claiming that Maserati.
If this exclusionary notion is safe, in a very real sense your “real,” “nonfinancial” asset claim is actually offset by a liability — on the (EverybodyElseIn)TheWorld balance sheet. Call the entry “Stuff that we’re excluded from touching.” If all those exclusionary claims wall off AllTheGoodStuff with violence, we’re talking a very real liability indeed — even though this imaginary World Balance Sheet doesn’t, and practically probably can’t, exist.

This notional balance sheet may seem crazy and outlandish to us. But our ownership, property-rights, and “asset” structures do and have seemed equally outlandish to other cultures:

…fee-simple ownership is not the only basis for ownership and possession of land. Many eastern cultures and tribal cultures throughout the world follow the “communal property system” in which ownership of land belongs to the entire social/political unit, like the tribe, families, bands, and nations.

From the inside, ideologies always look like common sense.

Asymptosis
Thinking About “Assets” and Ownership
Steve Roth

Paul Davidson — Bitcoin and MMT

What is Bitcoin? According to Modern Money Theory, bitcoin can not be money since it is not accepted in payment of taxes by any government — nor is it issued by any government via the governed purchase of goods and/or services from the private sector. So what is bitcoin in terms of MMT?? I do not know what MMT proponents would respond to this query?

Professor Davidson seems to be confused over necessary v. sufficient conditionality wrt state money aka currency (Chartalism), and money as an IOU that is transferrable (Innes, Minsky).

Requirement of state money aka currency is sufficient to create demand for the unit of account that the state issues as the sole provider. In this sense, currency is a tax credit. Other forms of money are not unless the state agrees to accept them at its payment offices. If it doesn't then they must be exchanged for currency for payment of taxes, fees, fines, or other financial obligations to the state required to be settled in the state's unit of account.

Any IOU can serve as "money" as an exchange medium if a counterparty will accept in exchange.

However, the rest of Davidson's post is interesting. Bitcoins are neither issued by any state, nor does any state accept them in payment of taxes as far as I know, and they are not anyone's IOU either, in that they are "mined" digitally as an analogy to precious metals, gold in particular. Is gold bullion money? Some would say yes. Others would say it remains a commodity that can be bartered for other commodities, unless it is minted and issued as a money thing. How does Bitcoin fit into this scheme?

Real-World Economics Review Blog
What is Bitcoin?
Paul Davidson | Holly Professor of Excellence, Emeritus at the University of Tennessee in Knoxville

Update on "An MMT Thought Experiment: The Arithmetic and Political Mechanics of Net Financial Assets"

Commenter geerussell alerts us that the conversation on Steve Roth's post has some interesting comments, mostly by JKH. These are a must-read, IMHO, or better, must-study.

Read it at Asymptosis
An MMT Thought Experiment: The Arithmetic and Political Mechanics of Net Financial Assets

by Steve Roth

Steve Roth — An MMT Thought Experiment

I ask not just for clarity, but because (as always), I’m struggling with the relationship between fixed assets and financial assets, between saving and investment.

Read it at Angry Bear
An MMT Thought Experiment: The Arithmetic and Political Mechanics of Net Financial Assets
by Steve Roth
(h/t Kevin Fathi via email)