Tuesday, May 16, 2017

A Crisp Definition of Money

The blog "The Epoch Times" had a post by Valentin Schmid "The Economic School You've Never Heard Of". I wrote the following comment:
I have not yet seen where "Austrian economics" recognizes how government spending violates the "trade-for-trade" (Note one) rule. To understand this concept, we must recognize that government never produces a product--government can only produce money to pay for a product.
Where does government get money to pay for a product? Taxation is one method but tax (in the form of money) is only collected if someone first produces products that can be traded for money. Government spending financed by taxation is following the "trade-for-trade" rule.
The second source for government spending may not follow the "trade-for-trade" rule. Government can borrow money for future spending.
Government has two sources of lenders; one follows the "trade-for-trade" rule, one does not. Government can borrow from private lenders who do follow the "trade-for-trade" rule. Government can also borrow from itself by borrowing from the central bank. THIS SECOND SOURCE OF BORROWED MONEY VIOLATES THE "TRADE-FOR-TRADE" RULE (because no-one ever worked to first earn the money marked for future government spending.
*Note one: "People come together to voluntarily engage in commerce with one another for their mutual benefit." I sum this phrase with the term "trade-for-trade". As an entity (not a productive individual) government has no ability to be creative. Government can only work in terms of monetary exchange. Hence, the source of money for government exchange becomes crucial.
In reply to my comment, Richard wrote:
 In order for your comment to have greater validity, wouldn't it help to define the concept "money", to include its purpose and source of creation? Of course everyone uses the term 'money' without giving it a moment of thought as to what it is and how it springs into existence. 
         I suggest a thorough reading of E.C.Riegel

In reply to Richard's comment, I wrote:
Yes, it would help to have a crisp definition of money.
I used a birthday gift certificate a few days ago. As I wandered the store (which issued the certificate), I realized that, so long as I was in the store, the certificate had equal value to the "money" i had in wallet or national credit card.
"Is money just a National Gift Certificate?" I wondered. That thought led me to think deeper into the idea of "merchant money", which is money issued by merchants and commonly known as "gift certificates". How does the merchant issuing certificates account for the certificates, print them, and redeem them? Can "merchant money" be traded or issued as payment for services rendered?
The answers to these questions (and more) seems to be parallel with our expectations from our everyday money. Our everyday money seems to be "merchant money" traded on an international scale.
To integrate this idea with my previous comment, think of the Central Bank acting as an arm of Government, issuing "National Merchant Money" or "National Gift Certificates". It all seems to fit together quite well.

These comments tie with my blog post  "The NGC Model, Banking and the Creation of Money" The recent comments contain an new idea, which is to identify "gift certificates" as "merchant money". The term "merchant money" translates easily to the money we handle on a daily basis and seems to convey an accurate impression.

Maybe "mercantile money" would be a better term, more general than "merchant money"?

Richard is right. We (as economist) need a crisp conception of money, and how it is created and destroyed. A crisp analog seems to be available in "mercantile money" commonly known as "gift certificates". This "mercantile money" must be created by the merchant, be properly accounted for, be used in trade, and have the possibility of direct dissemination by the merchant in exchange for goods and services.

Our crisp definition for "money" is "Money is a National Gift Certificate". An analog of "money" is "mercantile money", commonly known as a "gift certificate".

I think the crisp definition  and analog work.

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