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.

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