Money Is A Unit Of Measurement Of Account
This article presents my answer to the question: What is Money?
From the perspective of somebody analyzing developed economies' bond markets (which is the alone perspective which matters for the purposes of the blog) the answer is: money is a unit of account.
In other words, money is a unit of measurement, non a thing inward itself. Like a kilogram, for instance. You tin bring a kilogram of feathers, yous tin bring a kilogram of yummy breakfast cereal, but yous can't bring "a kilogram".
If a kilogram measures mass, what does money measure? It measures debt.
All forms of money inward a modern economic scheme are effectively debt instruments, too monetary transactions are thence a merchandise of something for a debt. And these debt instruments are measured inward a mutual unit, which is the domestic currency similar the Canadian dollar, USA dollar, or the British Pound. If at that topographic point was no mutual unit of measure, it would endure essentially impossible to pay these debts back. This is because debts are frequently settled yesteryear the debtor handing the lender a debt musical instrument of a tertiary party, too yous ask a mutual mensurate to compare their values.
What nearly notes too coins issued yesteryear the State? By most formal definitions, these are non considered to endure debt. However, they effectively are debt: they could endure used to discharge taxation liabilities taxpayers owe the State. Since ane of the uses of debt is to cancel out other debts, notes too money effectively human activity every bit debt instruments. Alternatively, yous tin sentiment notes too money every bit matured Treasury Bills, too and so they gibe quite nicely on the regime yield flexure - too the other instruments on that flexure are undoubtedly debt instruments.
Even if yous did something crazy similar returning to a Gold Standard, yous volition uncovering that this province of affairs volition non practically change. Most transactions inward the historical Gold Standard era were settled via the banking system, non via people slapping hunks of metallic on a store counter. The role of aureate inside the organization was largely to settle accounts across countries, every bit banking systems are national. People alone wanted to larn their hands on the aureate when the organization was breaking downwards (the aureate parities were changed versus the unit of account). Influenza A virus subtype H5N1 Gold Standard is only an assay at toll controls for ane commodity yesteryear the government, too toll command systems are fairly delicate things.
However, many economists bring incorrectly attributed many to a greater extent than properties to money than only beingness a unit of account. This mission creep has atomic number 82 to many people beingness confused or fifty-fifty angry nearly the monetary system.
The belongings that causes the greatest grief is that many fence that "money is a store of value". Although it would endure overnice if the monetary unit had a stable human relationship amongst all other values inward the economy, this is non actually possible inward an economic scheme amongst a various array of goods too services. (Most mainstream economic science models essentially bring a unmarried good, too so it is easier to bring a straightforward toll relationships.) Since prices shift relative to each other, it is impossible for all of them to bring a constant toll inward the unit of account.
Economists bring created averages, similar the Consumer Price Index (CPI) to assay to practise a unmarried "composite good" which could theoretically bring a stable monetary toll fifty-fifty every bit roughly prices ascension too others fall. However, I fence that the focus on what goods money tin purchase (the CPI or gold) is misplaced; the most of import toll inward a capitalist economic scheme is the toll of labour. (By definition, yous cannot endure a capitalist unless yous hire labourers.) Wage contracts are specified inward the unit of account, too tin endure viewed every bit a shape of debt contract. They are thus an extension of the spider web of debts that embrace all the participants of the modern economies. Therefore, the best that yous tin in all probability promise for is roughly stability inward the toll of labour when expressed inward the unit of account.
(NOTE: For a longer give-and-take of how the unit of delineate of piece of employment concern human relationship concept fits inward amongst the origins of money, come across this article from the Social Democracry for the 21st Century blog. It has a listing of references every bit well.)
(c) Brian Romanchuk 2013
From the perspective of somebody analyzing developed economies' bond markets (which is the alone perspective which matters for the purposes of the blog) the answer is: money is a unit of account.
In other words, money is a unit of measurement, non a thing inward itself. Like a kilogram, for instance. You tin bring a kilogram of feathers, yous tin bring a kilogram of yummy breakfast cereal, but yous can't bring "a kilogram".
If a kilogram measures mass, what does money measure? It measures debt.
All forms of money inward a modern economic scheme are effectively debt instruments, too monetary transactions are thence a merchandise of something for a debt. And these debt instruments are measured inward a mutual unit, which is the domestic currency similar the Canadian dollar, USA dollar, or the British Pound. If at that topographic point was no mutual unit of measure, it would endure essentially impossible to pay these debts back. This is because debts are frequently settled yesteryear the debtor handing the lender a debt musical instrument of a tertiary party, too yous ask a mutual mensurate to compare their values.
What nearly notes too coins issued yesteryear the State? By most formal definitions, these are non considered to endure debt. However, they effectively are debt: they could endure used to discharge taxation liabilities taxpayers owe the State. Since ane of the uses of debt is to cancel out other debts, notes too money effectively human activity every bit debt instruments. Alternatively, yous tin sentiment notes too money every bit matured Treasury Bills, too and so they gibe quite nicely on the regime yield flexure - too the other instruments on that flexure are undoubtedly debt instruments.
Even if yous did something crazy similar returning to a Gold Standard, yous volition uncovering that this province of affairs volition non practically change. Most transactions inward the historical Gold Standard era were settled via the banking system, non via people slapping hunks of metallic on a store counter. The role of aureate inside the organization was largely to settle accounts across countries, every bit banking systems are national. People alone wanted to larn their hands on the aureate when the organization was breaking downwards (the aureate parities were changed versus the unit of account). Influenza A virus subtype H5N1 Gold Standard is only an assay at toll controls for ane commodity yesteryear the government, too toll command systems are fairly delicate things.
However, many economists bring incorrectly attributed many to a greater extent than properties to money than only beingness a unit of account. This mission creep has atomic number 82 to many people beingness confused or fifty-fifty angry nearly the monetary system.
The belongings that causes the greatest grief is that many fence that "money is a store of value". Although it would endure overnice if the monetary unit had a stable human relationship amongst all other values inward the economy, this is non actually possible inward an economic scheme amongst a various array of goods too services. (Most mainstream economic science models essentially bring a unmarried good, too so it is easier to bring a straightforward toll relationships.) Since prices shift relative to each other, it is impossible for all of them to bring a constant toll inward the unit of account.
Economists bring created averages, similar the Consumer Price Index (CPI) to assay to practise a unmarried "composite good" which could theoretically bring a stable monetary toll fifty-fifty every bit roughly prices ascension too others fall. However, I fence that the focus on what goods money tin purchase (the CPI or gold) is misplaced; the most of import toll inward a capitalist economic scheme is the toll of labour. (By definition, yous cannot endure a capitalist unless yous hire labourers.) Wage contracts are specified inward the unit of account, too tin endure viewed every bit a shape of debt contract. They are thus an extension of the spider web of debts that embrace all the participants of the modern economies. Therefore, the best that yous tin in all probability promise for is roughly stability inward the toll of labour when expressed inward the unit of account.
(NOTE: For a longer give-and-take of how the unit of delineate of piece of employment concern human relationship concept fits inward amongst the origins of money, come across this article from the Social Democracry for the 21st Century blog. It has a listing of references every bit well.)
(c) Brian Romanchuk 2013
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