Re: [Pen-l] Re: money [was: Skidelsky on Keynes

["Jim Devine" <jdevine03@xxxxxxxxx>]

[after a sojourn of living with a broken internet connection and
various kludges.]

John Vertegaal had written:
>>> I'm still waiting for some economist to explain how money after having been created out of nothing, when someone at an issuing bank accepts a promissory note to have it paid back with interest later, turns into a positive, free and clear "thing", different from representing a to be repaid debt.<<<

me:
>> First, in a market system, fiat money has a price above zero (that is,
>> it can actually buy goods, services, and assets) because the central
>> bank (as agent of the state) keeps it scarce.

John:
> This still begs the question what money actually is. Is your "scarcity"
> axiomatic or does it derive from more basic axioms?

"scarcity" of a marketable good, service, or asset simply refers to a
good with a positive price. It's not derived from axioms but
definitional.

Money is the "universal equivalent." It can be used to buy absolutely
everything else that's for sale on markets (commodities). To be a
useful, "base" money (currency) it has to be more than just scarce: it
must be acceptable (e.g., non-toxic), durable, homogeneous, portable,
and divisible. Credit or bookkeeping money must be backed by such base
money and faith in and the good credit of the borrowers and lenders.

me:
>> Then, there's the bookkeeping money that banks issue, when they lend,
>> the "promissory note[s] to have it paid back with interest later."
>> This is first and foremost backed by fiat money (bank reserves). It is
>> also based on faith in the debtors, who are promising to pay back.
>> It's also based on faith in the banks who "borrow" our deposits to
>> make the loans.

John:
> Fair enough, but from my perspective, you're leaving out something vitally
> important, namely that our economic system is accounted for on the
> principles of _double_entry bookkeeping. In such a system, any notion of
> accumulating assets that exceed liabilities is inconceivable. In other words
> it is a system of _debt_ acquisition and a subsequent resolution, for a
> specific ultimate purpose; which, in order to keep the system itself
> meaningful, has to be situated outside the economic system as such, having
> lost all its economic mensuration.

huh? If assets cannot exceed liabilities, there's no net worth, no
equity, no capital! In the right-hand column of a double entry books,
there's an entry at the bottom, i.e., net worth = assets minus
liabilities.

Someone owning equity can use that M to hire labor-power to produce
new commodities C that can be sold for a larger amount M', so there's
a surplus-value M'-M. Some of that surplus-value can then be
accumulated, raising the equity. In theory at least, no new debt
accumulation is required for this process to occur.

> Marxians may recognize this supra-economic [??] domain to consist of use values; and all of us happen to
> occupy it too, just supplying our vitality to the economic sphere and
> obtaining the bulk of our standard of living in return. I'm working on
> drawing a schematic representation of this. ...

we live in a world of use-values, but we also live in a
commodity-producing economy where these use-values have
exchange-value. Further, we live under capitalism, where surplus-value
can be produced.
-- 
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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