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Money and value

littlebabyjesus said:
It is something that we accept in return for labour and so we measure how much our labour is worth at the time of that transaction by a calculation of what we think we will in turn be able to exchange for the money. But the actual value of the work done exists for the other person - in their roof being fixed, or whatever. If anything money is 'anti-value' - it's a uom (you owe me, where the 'you' is 'the world') for value.
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use value and exchange value
 
Even if new money is created to pay off the loans, the amount of physical value has increased therefore cancelling out any inflationary pressures. It's not the creation of money per se that causes inflation, it is the amount of money relative to the amount of real value.
 
newme said:
was this written stoned in an economics class
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Whenever this subject is raised here, twerps like this will raise their twerpish heads and basically make any sensible discussion impossible.

However I would suggest that if we want to understand the nature of money, we need to return to Aristotle. Marx's analysis of money is Aristotelian, and the biggest mistake people make is to try to read the former without having assimilated the teaching of the latter.
 
I'm expecting to get battered by one or two of the Marxist scholars on here, but I do think this is something that it is very difficult to think about. No wonder there is so little consensus among economists. There isn't even proper consensus about what money is. As to questions such as 'what produces inflation' and 'does raising interest rates produce inflation or reduce it', again there is no consensus.

I'm still think the key to the whole thing has to be in understanding how money enters the system in the first place, which is something a lot of people seem to neglect, working from a position where the money is already somewhat magically there.
 
littlebabyjesus said:
I'm expecting to get battered by one or two of the Marxist scholars on here, but I do think this is something that it is very difficult to think about. No wonder there is so little consensus among economists. There isn't even proper consensus about what money is.
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It's a sign.

But then you knew I was going to say that.
 
Well, aside from the supernatural devil bit, I largely agree with you about the nature of money. It is a sign, yes, a worthless sign until someone attaches value to it.

What I'm really interested in is the way money increases in volume. 'Reproduces itself' as you would say. There is nothing magical about the process - and I still think the fact that it is created with interest owing is the root cause of its necessary reproduction.

In terms of the question of inflation, on another thread it was suggested that the rate of circulation speeding up might be a cause. I don't see how this can be the case. The rate of circulation of money will only speed up if the amount of transactions increases, and its speeding up should keep exact pace with growth. I don't see any inflationary pressure there at all.
 
phildwyer said:
This of course is where we disagree.

Certainly it was regarded as, and referred to as, "magical" until the eighteenth century.
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lbj, it seems that you think money has been essentially the same concept and practice throughout history. I'm not so sure it has tbh. Money have uses other than financial transactions - as ritual objects for example. In this sense coins, notes and other forms of tender aren't just signs, they're also objects thought to have inherent qualities and powers, even sentience according to some. Money as fetish, in the classical and not the Marxist sense.

In such a context the value that money has isn't attached to it by people, it is an essential aspect of the nature of money. Note that this isn't my viewpoint. I'm not an essentialist in the normal sense of the word.
 
mm. The idea of seperation between symbol/referent is one I encountered through reading on language but I think it applies to currency and the idea of currency. In another way, phil isn't wrong about the 'magic' nature of money, if we want to take 'magic' to mean consensual delusion. A fiver is a fiver not through intrinsic value but because etc
 
Money's a social construct. Nothing magical about it. That said, as posted above, some cultures and people see money as something magical or supernatural, in addition to its regular ontological status.
 
TruXta said:
In such a context the value that money has isn't attached to it by people, it is an essential aspect of the nature of money. Note that this isn't my viewpoint. I'm not an essentialist in the normal sense of the word.
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At the moment, I'm only really talking about money as it now exists in capitalist societies, where it enters the system through loans made at interest.

Its origins are different in that it used to be important what the coins were made from - their value came from the qualities of the actual object, or as is the case with the Aztecs, for instance, the coffee bean was used for exchange and its value again came from the fact that coffee beans have value. Even more recently with the gold standard, value was theoretically given by the amount of gold the promisory note promised.

Now, any pretence that the value of money comes from something inherent to the metal or the note has gone. We've completed the journey of full abstraction - only a tiny amount of money nowadays ever exists as anything other than a number in a computer system: in the UK less than 3 % of all money exists as cash.
 
littlebabyjesus said:
What I'm really interested in is the way money increases in volume. 'Reproduces itself' as you would say. There is nothing magical about the process - and I still think the fact that it is created with interest owing is the root cause of its necessary reproduction.
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Don't the Post-Keynesian's have a theory of endogenous money that delves into this? BTW, have you had a look at post #32 regarding inflation?
 
ItWillNeverWork said:
Even if new money is created to pay off the loans, the amount of physical value has increased therefore cancelling out any inflationary pressures. It's not the creation of money per se that causes inflation, it is the amount of money relative to the amount of real value.
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My contention is, essentially, that the rate of inflation equals the amount of interest paid minus growth. The interest is due whether or not there is any growth, and the rate of interest charged is invariably higher than the rate of growth. My point is that the money supply has to keep growing - ie the amount of debt has to keep growing - in order to pay the interest due on loans, whether or not there is growth.
 
My brain isn't up to this at the moment but I'm interested in it. I'll come back to the thread but in the meantime can someone explain to me the process by which governments put money into the system when they decide to do 'quantative easing'. I've been wondering about it for a while.
 
littlebabyjesus said:
It might still happen here. As I understand it, one of the reasons Japan keeps lurching into deflation is that its currency is so strong and remains strong despite the best efforts of the Japanese to weaken it. A strong currency is a deflationary pressure.
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The reason is Japan tried austerity in the 1990s and still hasn't recovered. Same story for every other country that tried austerity with high unemployment and low interest rates. It's like deciding to walk up the down escalator instead of walking a bit further to the up.

The links in this are worth chasing:

Austerity Games, Here And There

Early last year, many people on both sides of the Atlantic seized on the idea that less is more — that cutting spending would actually help, not hinder, recovery. There was a paper by Alesina and Ardagna that seemed to provide evidence to that effect, and nothing succeeds like telling people what they want to hear.

Since then, the whole intellectual edifice has collapsed. The Alesina et al methodology turns out to be deeply flawed, which should have been obvious from the start (and was, to some of us.) The alleged cases of expansionary austerity have, without exception, turned out to be bad examples, either involving cuts when the economy was booming or situations in which sharp interest rate declines and/or currency depreciations were the actual sources of expansion.

But by then expansionary austerity was the official doctrine of the Conservatives in Britain (and also the ECB) and of the GOP here.

So, how are they dealing with the collapse of their doctrine?
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Brainaddict said:
My brain isn't up to this at the moment but I'm interested in it. I'll come back to the thread but in the meantime can someone explain to me the process by which governments put money into the system when they decide to do 'quantative easing'. I've been wondering about it for a while.
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They buy government gilts. So, say, Barclays Bank owns some UK gilts - the Bank of England just creates money by a click of a button and uses that money to buy the government gilts from Barclays Bank. It does this in the hope that the bank will then use that money as the basis for lending. So now we have a situation where a percentage of UK government gilts are owned by the Bank of England.

During the recent recession, so few loans were being made that the amount being loaned out was less than the amount being paid back on existing loans, which has the net effect of reducing the money supply. Part of this reduction was accounted for by the contraction of the economy, but too much reduction of the money supply and you end up with deflation. Deflation cripples an economy because it removes the incentive to invest - you can make money just by metaphorically sticking your money under the mattress.

It's Keynsian economics, basically, but there are other, imo far better, ways of achieving the same thing. The credit crunch was the perfect opportunity to solve Britain's housing crisis. As builders and architects were being laid off, the government could have stepped in and simply printed the money to pay them to build social housing. Short-term the recession would prevent this from causing inflation. Long-term, the rents paid by tenants would have prevented it from causing inflation - the money from the rents could have simply been destroyed again. So we'd have had more houses, a stronger and more just economy, and all that with no downside.
 
littlebabyjesus said:
At the moment, I'm only really talking about money as it now exists in capitalist societies, where it enters the system through loans made at interest.

Its origins are different in that it used to be important what the coins were made from - their value came from the qualities of the actual object, or as is the case with the Aztecs, for instance, the coffee bean was used for exchange and its value again came from the fact that coffee beans have value. Even more recently with the gold standard, value was theoretically given by the amount of gold the promisory note promised.

Now, any pretence that the value of money comes from something inherent to the metal or the note has gone. We've completed the journey of full abstraction - only a tiny amount of money nowadays ever exists as anything other than a number in a computer system: in the UK less than 3 % of all money exists as cash.
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Fair enough that you don't want to go into history (although these practices continue to these day in different cultures around the world - China for example).

About your last sentence - I don't know that the value of money as distinct from its materiality is new, credit certainly isn't, and that is the same practice and idea of divorcing form from substance. Check out David Graeber, he's got some good stuff on money and credit. This is a short piece - annoying format tho. http://www.canopycanopycanopy.com/10/to_have_is_to_owe
 
littlebabyjesus said:
My contention is, essentially, that the rate of inflation equals the amount of interest paid minus growth. The interest is due whether or not there is any growth, and the rate of interest charged is invariably higher than the rate of growth. My point is that the money supply has to keep growing - ie the amount of debt has to keep growing - in order to pay the interest due on loans, whether or not there is growth.
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Ok, I see where you're coming from now. I guess I was working under the assumption that the money borrowed for capital investment would successfully result in the production of new goods. I.e. if an economy has £100 and 100 widgets, each would be worth £1. If a loan was made of £10 of newly created money, and this was used to produce capital that led to the production of 10 more widgets, then the two would equal out and no price changes would occur. Which is essentially what you are saying.

In this sense though, money creation could also be deflationary if 20 widgets were produced with the £10 created. In other words there would be £110 in circulation, but 120 widgets - a price of 92p or there abouts.
 
Unless you are using the definition of 'inflation' to mean 'increase in the money supply' rather than 'a general rise in prices'.
 
TruXta said:
Money's a social construct. Nothing magical about it. That said, as posted above, some cultures and people see money as something magical or supernatural, in addition to its regular ontological status.
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one which is subject to whims of market and forces outside of it's real value. It's not hard to see why phil engages with the 'it is basically voodoo' line of reasoning because despite all attempts to anchor currency to the real of what it represents, we still have currency subject to whims as arbitrary as its own claim to value. Might as well be flaxscrip if the 'I promise to pay the bearer' isn't backed by belief and ultimately government. I know there is a risk of dissapearing up my own hash pipe on that line of thought. Flaxscrip.
 
ItWillNeverWork said:
In this sense though, money creation could also be deflationary if 20 widgets were produced with the £10 created. In other words there would be £110 in circulation, but 120 widgets - a price of 92p or there abouts.
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It could, but in practice, the rate of interest is invariably substantially higher than the rate of growth.
 
littlebabyjesus said:
It's Keynsian economics, basically, but there are other, imo far better, ways of achieving the same thing. The credit crunch was the perfect opportunity to solve Britain's housing crisis. As builders and architects were being laid off, the government could have stepped in and simply printed the money to pay them to build social housing. Short-term the recession would prevent this from causing inflation. Long-term, the rents paid by tenants would have prevented it from causing inflation - the money from the rents could have simply been destroyed again. So we'd have had more houses, a stronger and more just economy, and all that with no downside.
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This kind of thing is an example of how we can become controlled by the logic of money rather than using the money for our own needs. It is this aspect of money - where we end up serving it rather than it serving us - that I have sympathy with dwyer for.

Where a crisis is purely financial, it isn't necessarily a crisis at all. Looked at properly, it is a fantastic opportunity to do good and take control of the economy away from the rich. The credit crunch was potentially a very good thing for ordinary people. It wasn't of course, in large part because of the way QE was done, but it could have been. It was a missed opportunity.
 
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