Paul Krugman asked yesterday (Jan 6) a question economists have frequently asked: how do we define money? Prof. Krugman asked this rhetorical question in the context of deciding whether there is a single proper number that can reflect "the" money supply.
But our definition of money, of course, determines not only how we count it but also how we use it.
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What is money, anyway? It’s not a new question, but I think it has become more pressing in recent years. Surely money is not merely pieces of green paper bearing portraits of dead presidents.http://www.truth-out.org/...
Prof. Krugman asked this rhetorical question in the context of contemplating whether there is a single proper number that can reflect "the" money supply. He continues,
For another, checking accounts are a clear substitute, since no green papers are ever exchanged when you deposit your paycheck in the bank, for example.
And,
But now we have a large shadow banking system in the United States — hedge funds, investment banks and so forth.
And with credit cards, electronic money and more all serving as mediums of exchange, it’s not clear that any single number deserves to be called "the" money supply.
So if a person is determined to view economic affairs through a sort of "paleo-monetarist" lens, he is going to have a hard time in the modern world, where the definition of money is increasingly vague.
It’s important to know what something is before you can count it in units. Economists seem to generally agree that money is a social contract and not a physical entity, even though the physical entities of paper money can represent it.
The prehistoric inventors of money very likely were unaware that their invention was a social contract. This fact dawned on people much later, and even today they are divided or confused as to whether money is physical or non-physical. To many people it can be both.
One regards money as physical in part because it is so commonly exchanged for physical things—cars, furniture—so it seems like the equivalent of physical stuff. Even when one exchanges it for services, one thinks that the service provider will later exchange it for physical goods, so it seems to maintain its connection with material things.
In seeking to visualize money, economics prods us to examine its functions in the trading of commodities and goods. While this has important uses, my belief is that we need to humanize money to improve the way it serves people in the 21st century. We need to focus upon and define money in terms of its effects upon the user rather than upon its relation to commodities and goods.
How do we humanize money? My approach, as presented in my small e-book, "Money as Information", is to focus upon the needs of the individual user of money.
Governments can proclaim that citizens have the right to life, liberty and the pursuit of happiness, the right to freedom from want and fear, but in fact governments do relatively little in a positive vein to assure that their citizens achieve these rights. The reason? A great deal of money would be involved, and governments have limited budgets, based upon an antiquated understanding of money.
What needs do people fulfill when they use money? It appears that almost every human need involves money in some way for its fulfillment. Therefore, every person should have sufficient money for his/her basic needs, at least.
Since man invented money, man should be able to modify or even eliminate this invention. Man should be able to define money any way he wishes. If we define money as information, as I have, we realize that information is nearly unlimited, which fact would allow for a number of beneficial outcomes for citizens. With expanded government budgets, many more citizen benefits would be possible.
Among these benefits, I visualize a Basic Income Guarantee (BIG) for all citizens, to cover the basic needs of food, clothing, housing and medical care; increased government projects and programs for infrastructure building, environmental and climate-control mitigation; stronger support for science, education and the arts; and so forth—in sum, all those projects that government can do best.
In addition, I have proposed eliminating most taxation, except for regulatory purposes. If government could create all the money required to meet citizen needs, there would be no necessity for collecting money from its citizens. This change would not only be an economic stimulus, it would importantly alter the common view that government is in an adversarial relationship with its citizens. With hostility toward government reduced, society could function more smoothly and effectively.
While these proposed changes would be difficult to achieve, a greater difficulty would be to continue with our dysfunctional economic system, with a huge portion of the world starving, ignorant and fearful.
I diaried on this topic earlier http://www.dailykos.com/... and at European Tribune http://www.eurotrib.com/...
I would also like to suggest reading this diary on a related topic, by Letsgetitdone: http://www.dailykos.com/...
Thank you for reading this far. I appreciate your thoughts and comments.