Currency is Equity, Equity is Currency
This is utterly brilliant:
Twitter / izakaminska: Why equity is a type of privately issued currency
Steve Randy Waldman has been here before, with the idea that currency issued by government (ultimately through deficit spending) is “equity” in government, or in America. But this reverses it beautifully, with the notion that private equity issuance is also currency issuance. Google stock is currency.
I won’t recap the argument here; you really need to read it. Just some thoughts:
I think different words might help make it clearer. I would say that there are many units of exchange in the world — dollar bills, t-bills, stock shares, etc. Financial assets. They have various characteristics, a key one being limits on what they can be exchanged for. In general when we say “currency” we mean physical tokens that can be exchanged for (small quantities of) real goods. But we confuse things by not realizing that “currency” is a somewhat vaguely defined subset of “units of exchange.”
(Key distinction: the “units” I’m talking about are not measurement units like inches, degrees, or “the dollar” — units of account. Rather, in the sense of discrete units, chunks. As when a factory produces a certain number of units, which can have their value described relative to a unit of measurement/account, such as the dollar. More on the distinction between “unit” and “medium” of account/exchange here.)
You can’t buy a car or a government bond with quarters. So are quarters currency? Likewise, you can’t buy a pack of gum with a treasury bond — but you can use it to buy Fed reserves (if you’re a bank). Is the bond currency? You decide. But both quarters and bonds (and Google shares) are units of exchange. (This is why I’m still struggling with JP Konig’s “moneyness” concept: it seems to hinge on a single axis of “liquidity,” when in fact different units of exchange are differently liquid.)
We can also call these units of exchange “financial assets.”
I do not define a “bushel of apples” as a unit of exchange or a financial asset, but as a unit of commodity. Ditto an ounce of gold. Because in my definition:
1. Units of exchange/financial assets cannot be consumed by humans to produce human utility, and
2. Their creation requires no (or vanishingly little) input to production.
Returning to a previous (excessively long) post, these units of exchange/financial assets embody exchange value — money. Hence (alert: precise definition here) money is exchange value as embodied in financial assets. Money does not, cannot exist, absent such embodiment. A bushel of apples does not embody money: That bushel has exchange value, but the value is not embodied in non-consumable, only-exchangeable form.
Not sure how much this will help others, but it’s working for me.
Cross posted at Asymptosis.
How many dollars will a share of Apple buy is how I conceive it. It has to be appreciated that we are talking here about the store of value aspect of money. An aspect that is rarely considered anymore and is dismissed totally by the left now with it’s embrace of MMT. (or that’s how I see it)
Bernanke has made no bones about the fact he want’s financial asset prices to inflate. Well how could he not since he knows that the mechanism of Fed balance sheet expansion work directly in one place only, the financial markets.
So while most everyone wants more money, printed if necessary and it is since loans and leases are stagnant, they are ignorant of the fact that what is inflated are stocks and corporate paper and that inflation is then the measure of wealth and thus power in what has become a virtuous circle for the tiny minority who own corporate equity and debt. One might say the Feds $2 trillion in money ‘printed; the last 4 years has gone directly into the hands of the wealthy via the inflation of their corporate assets.
There is no getting off this train.
@rapier: “we are talking here about the store of value aspect of money”
You’ll notice that in my definition, that’s the only meaning. Definitions with multiple meanings, or meanings that require multiple definitions, are…problematic. I should add that the word “medium” in the standard definitions makes little or no sense.
I would suggest that the MMTers, with their stock-flow consistency, actually have a very good handle on the storing and exchanging of “money”. I don’t know if they’ve worked out a coherent theory of value.
“the mechanism of Fed balance sheet expansion work directly in one place only, the financial markets”
Right. It’s not at all clear to me that the “hot potato” effect necessarily operates (much, or strongly, or at all) beyond financial-asset portfolio rebalancing. IOW in the market for real goods. Sometimes more than others, I guess.
On your last two paras, to quote Jazzbumpah: WASF.