Steve Roth — “In the Beginning…Was the Unit of Account” – Twelve Myths About Money

Jan Kregel presented a great dinner speech at the recent Modern Monetary Theory Conference, touching on some of the fundamental ways we think about money and economics. (Sorry, no recording or transcript available.) I had a brief conversation with him afterwards, and we followed up with a few emails.

The quotation in the title of this post is condensed from the final line of one of his emails — a line that made me laugh out loud:

“So I guess we start from that — in the beginning was the word, and the word was the unit of account?”

Okay, yes: money-dweeb humor. But the implications are kind of profound.

The Word. Logos. Indeed. I’ve written about this before — how writing in its earliest forms emerged from tally sheets, accounting. Even, that its emergence was the first step on the road to outsourcing our memory onto iPhones, maybe even (only somewhat tongue in cheek) causing human brains to shrink over millennia.

Jan’s great line, and our conversations, prompt me to set down some thoughts on this ever-vexed subject. Herewith, twelve widespread usages and conceptions that, in my experience, tie our money discussions in knots. Please assume that anything you don’t like here is mine, not Jan’s, and apologies to those who have heard some of this from me before....

Asymptosis
“In the Beginning…Was the Unit of Account” – Twelve Myths About Money
Steve Roth

Matias Vernengo — History of Central Banks Tutorial - Before Central Banks II

Naked Keynesianism
History of Central Banks Tutorial - Before Central Banks II
Matias Vernengo | Associate Professor of Economics, Bucknell University

JP Koning — Zimbabwe's new bond coins and the demonetization of the rand

Not just Zimbabwe but also other nations using foreign currency as the unit of account and different currencies for the medium of exchange.

Moneyness
Zimbabwe's new bond coins and the demonetization of the rand
JP Koning

Peter Martin — The world owes $57 trillion. Who the F*** to? Mars? Jupiter?

World Debt Clocks — World owes over 57 trillion (expressed in USD)

These morons apparently don't realize that all money is created by crediting and debiting accounts. Money functions as a unit of account, medium of exchange, store of value, and record of debt. Every debt has a corresponding credit denominated the unit of account of that jurisdiction, so that all debt as someone's liability is someone else's asset, which nets to zero. 

Since money is not only someone's debt (a payable) but also someone else's credit (a receivable), it is just as true to say that the world owns over 57 trillion in financial assets expressed in USD, as it is to say that the world owes 57 million in financial liabilities. Doh.

If there were no credit-debt relationships, that is, if all financial liabilities were extinguished, then there would be no money, and exchange of goods and services would be reduced to barter.

Modern Monetary Theory — Real Economics

The world owes $57 trillion. Who the F*** to? Mars? Jupiter?

Peter Martin

Mathew Forstater — Alan Watts got it. So did Alexander Del Mar

Alan Watts, best known for bringing Eastern philosophy to Western readers, had a better understanding of money than most economists. In an essay entitled “Wealth versus Money,” he writes that money is a unit of measurement, like acres measure units of land. You can run out of land, but you can’t run out of acres. Here’s the passage from his essay:

'It was just as if someone had come to work on building a house and…the boss had said, “Sorry, baby, but we can’t build today. No inches.” “Whaddya mean no inches? We got wood. We got metal. We even got tape measures.” “Yeah, but you don’t understand business. We been using too many inches and there’s just no more to go around.”'

This is similar to Alexander Del Mar’s distinction between a unit of measurement and the thing it measures. Del Mar wrote that, “Money is not pieces of merchandise any more than…minutes are pieces of clocks.” Or Warren Mosler’s admonition that money is how we “keep score,” and the idea that we can run out of money is as absurd as the idea that the scorekeeper in a football match can run out of “points”: Peyton Manning threw another touchdown pass? Sorry, no points left, we can’t increase the Broncos’ score!

Mathew Forstater
lifted from FaceBook

Great find!

Joshua Wojnilower — The Role of Money in Mainstream Macro

Based on my initial exposure to advanced macroeconomics, it appears true that “money would be at most a unit of account, but never a store of value.”

Bubbles & Busts
The Role of Money in Mainstream Macro
Joshua Wojnilower

The functions of money are 1) unit of account, 2) medium of exchange, 3) store of value, and 4) method of deferred payment. That is, 1) nominal price and record, 2) settlement of transactions in a payments system, 3) saving vehicle, and 4) credit. Mainstream macro does what?