Yes, we know we
said we might talk about Glass-Steagall today.
The key word there was “might.”
What happens quite often, especially if blog posting is pretty far down
on your list of priorities, is that sometimes you just happen to get a ripping
good idea . . . or at least one easier to rip out when other work is starting
to pile up.
In any event,
we’re still going to talk about a touchy subject today: money (what a
surprise!). All — or nearly all — of
economics and finance today takes one thing for granted. That is, money and credit is a scarce
commodity in the economic sense; regardless how much money and credit existed
yesterday, or will exist tomorrow, there exists a finite amount at this
particular point in time.
That is (sort
of) correct . . . although we’ll find out that it also is, in a sense,
completely wrong.
Yes, if you pick
any point in time, there is a fixed amount of every thing for the simple reason that you fixed a point in time,
and everything is stopped at that moment.
That is why the economists say that in economic terms, every thing is scarce.
We separated
“every” and “thing” for a reason: it means every thing. If it’s not a
“thing,” then it’s not scarce in the economic sense, is it? And money and credit is not a thing. It’s a way of measuring value.
Perhaps an
illustration will help. Suppose you’re
barreling down the highway at 60 mph. At
precisely 10:00 am, how fast are you traveling?
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| The Mighty Thunderbolt Grease-Slapper |
An interesting
point, that. Speed — how fast you are
traveling — is measured in miles per hour. A single point in time has no duration, so there
is nothing to measure. It’s not that
you’ve stopped moving. It’s that any
answer is meaningless; there is no “per” in the figure. You have to have something to measure before
you can measure it. You can’t answer how
many miles per hour or anything else when there is no time unit.
Now change the
question to, how fast are you traveling from 10:00 am to 10:01 am? In one minute you cover a mile, so you’re
going a mile per minute, which is equal to 60 miles per hour.
The question
gets easier with economic scarcity, because there is something to measure, i.e., how much of X is there at this point?
Rephrasing our question in terms of economic scarcity, we can ask, how
many miles have we covered since 9:00 am? or, how fast have we been going if
we’ve covered 60 miles from 9:00 am to 10:00 am?
At precisely
10:00 am, then, we have accumulated or consumed 60 miles worth of travel, or
one hour’s worth of travel time. If
you’re getting paid by the mile, you have accumulated a service worth whatever
your mileage rate multiplied by sixty equals.
If you’re getting paid by the hour, you’ve accumulated a service worth
one hourly rate. Your mileage or your
time is, in a broad sense, a commodity you’re selling. Your speed?
That’s not a commodity, it’s a measure.
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| "What do you mean, I've run out of mph?" |
Under the
Banking Principle, it’s the same with money and credit. Money and credit is not itself a commodity in
fixed supply at any point in time. It’s
a measure of value, an abstraction. It
measures the value of commodities, but is not itself a commodity. It’s like speed: it’s dollars per thing
valued, miles per time unit, feet per long thing being measured.
To say, then,
that the amount of money and credit in the economy is fixed, or there is too
much or too little money is, from the Banking Principle perspective,
meaningless. To say there is not enough
money in the economy is the same as saying you only have so many mph to go
around. Oh, no! We’ve run out of mph, and we can’t take that
drive to visit Grandma!
Sounds stupid,
doesn’t it? That’s because it is. We’ll take a look on Monday what happens when
people try to manipulate money and credit as if it is a commodity. It’s not pretty.
#30#
