Originally published July 21, 2011 on the New Economic Perspectives blog.
So the Telenovela trick worked: many good comments and questions, with no one destroying the plot line. Let me briefly address them by grouping them into six general areas. And then on Monday we will give an answer to the question: why would anyone accept a sovereign currency? On the comments page I already addressed two questions so will not repeat my answers to those here.
- Can gold be money? No. Never. If gold could be money, why not silver? Copper? Coconuts? Fish? Domestic services? A fuller answer will have to wait. In my view, money can never be a “commodity”. For our economistic friends, recall the line from Clower: “goods buy money, money buys goods, but goods never buy goods.” If a commodity could be money, we have a case of “goods buying goods”. There is not, never has been, such a thing as a “commodity money”.
- Money is a “custom”, “law”, “norm”, “rule”. Ok, not specific enough for my taste. What is the nature of that custom, law, norm, rule? I do think that referring to “law” is on the right track. In my view, “custom”, “norm”, “rule” does not pin it down. This should be clear from the blogs I have posted the last two weeks. (Hint: why did I use the term “sovereignty”?) Veblen skewered the “leisure class” for its customs and norms—I love his explanation of the development of the custom of growing long fingernails (mostly, but not exclusively, on women—to prove that one is not and cannot be productive). These things are important. But they do not shed much light on money. Laws? Yes, you are getting hot (remember the game you played with your mum?–hide the thimble). But not legal tender laws—nothing but a “pious wish”, as Knapp put it.
- Why would those outside the US be willing to use dollars? Very good question. And, yes, it is related to a wish to “join the party” put on by the biggest economy in the world. But it really does beg the question, no? Certainly it must be related to willingness of Americans to accept dollars. But we do not want a “hot potato” or “infinite regress” argument (which Ramanan accuses us of, continuing to misstate the MMT position—her/his “MO”, unfortunately, and she/he does know better). So….why do Americans want dollars? Ah, yes, that is the question.
- Are all debts denominated in money, such as the schoolyard debts amongst children? No. For an excellent, and I mean really, truly excellent, book on debt broadly defined, please read Margaret Atwood’s “Payback: debt and the shadow side of wealth”. She documents that chimps keep careful records of debts and credits. If Chimp A helps defend me against an attack but I do not “payback” next time Chimp A is attacked, I cannot count on her when I need help. Yes, we are cousins of chimps, and yes we keep careful track of debts and credits. But many or most of these are not denominated in money terms. So far as we know, Chimps have never come up with the concept of a unit of account. But remember, if a chimp does you a favor, you’d better pay up.
- Does it have something to do with accounting systems of credits and debits, denominated in dollars? Bingo. We are onto something here. Credits and debits. Measured in a money of account. Keep that in mind for next week. Ponder this: if currency is related to the sovereign government, what debit/credit relation do we have with that sovereign? Remember the chimps. What do we owe our sovereign chimp?
- Soddy: the value of money is determined by the wealth given up when money is accepted. Except for some unfortunate terminology, we’ve again “struck gold”. The value of a currency depends on what we have to “give up” to get it. Be careful here—the value of the currency is not quite the same thing as willingness to accept it. Just because I am willing to accept a currency does not determine its value. “What am I willing to do to obtain it?” That is not the same as: “Why am I willing to accept it?” (Soddy was brilliant and came up with the Soddy principle: debts tend to grow faster than incomes due to compound interest, which is why we need the Year of Jubilee when all debts are forgiven. But we adopted the Roman view of time—abandoning the circular view of time that all previous societies accepted—so that we can never “go back”, debts can never be forgiven because property rights are sacrosanct, including the creditor’s right to squeeze blood out of an orange. So we have to have bankruptcy court, debtor’s prisons, and IMF sanctions. Ain’t Roman civilization grand?) So I need dollars (why?) and am willing to “give up something” to get them (how much?). Those, as our Hamlet might say, are the key questions about money: why, and how much?
OK, so the suspense is killing you. Four long days to wait for the answer to be revealed. Plot spoilers: go ahead and do your damage.
