Re: Is Money Credit?

["John Gelles" <indexed-savings@xxxxxxxxxxxxx>]

A friend of Gunnar Tomasson (reform-minded economist)
wrote to Gunnar's discussion forum -- "Is Money Credit?"

The friend said --

        "Money, in its  MOST  ADVANCED  form, can never
          be a promise to pay something else -- the  'something
          else'  would be money.   Money is an entity in itself,
          and mixing it with the concept of credit will only
          confuse it.

        "While credit may improperly be made into money,
          money, in itself, is never credit -- it is money.


Gunnar replied that -- Credit is a general principle and that it
covered money.


Gunnar might have been more specific:  The most advanced
form of money is naked fiat money -- declared by law to be
all you need to pay to discharge any debt.

The promise implied by such naked fiat money is made by its
sovereign creator -- a nation with courts empowered to resolve
disputes over debt and its legal payment (or discharge).

The promise is made to the claimant, creditor or lender who is
obliged to accept money in exchange for debt. The promise states
that the money paid and accepted will hold value over a reasonable
time and will be able to purchase real things equal in value to the
debt that has been discharged.

When the implied promise is kept, the naked fiat money is as
good as or better as any other money -- like IOU's, banknotes, and
gold coins.

When the implied promise is not kept, AND the naked fiat money
is worthless or nearly so, it is NOT money.   It is a worthless or
nearly worthless implied promise.

How long is a reasonable time?  Usually one purchasing cycle,
normally one year or less.  In volatile times, the strength of
naked fiat money can be compared to that of gold coins:  If gold
is not holding value, no money will -- and, effectively, there is
no money;  there may be no enforceable debt either.  ( It may be
that only guns, knives and bombs are useful tools to get your
hands on food you do not already possess and can defend against
all others.)

                                HOWEVER:

In the end, Gunnar's friend is right -- naked fiat money, not IOU's
or other simple debt, are the kind of money needed in hard times.

Naked money only can save a nation when debt and debt-based
money has failed it.  That is why he friend correctly points out
that credit improperly made into money may have to be augmented
by the real thing -- naked fiat money that carries an implied promise
-- and thereafter makes good on that promise of purchasing power.

If Gunnar is looking for a general principle to cover money, it should
be  "purchasing power"  NOT  "credit".

John Gelles