Money, Money, Money

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Paul Krugman asks a question:

But here’s an even more basic question: what is money, anyway? It’s not a new question, but I think it has become even more pressing in recent years.

Surely we don’t mean to identify money with pieces of green paper bearing portraits of dead presidents. Even Milton Friedman rejected that, more than half a century ago….Friedman and Schwartz dealt with this by proposing broader aggregates — M1, which adds checking accounts, and M2, which adds a broader range of deposits. And circa 1960 you could argue that those aggregates were good enough.

….The truth is that these days — with credit cards, electronic money, repo, and more all serving the purpose of medium of exchange — it’s not clear that any single number deserves to be called “the” money supply. Intellectually, this isn’t a problem; nor is there necessarily a problem maintaining monetary policy even if there isn’t any single thing you’re willing to call money.

I’m not sure if I agree with this or not. Intellectually, this does seem to be a problem. An awful lot of the technical discussion I see about stimulus and monetary policy and quantitative easing and so forth really does seem, at its core, to revolve around the question of just what counts as money these days.

So: What is money? The simplest answer is, “Anything you can pay your taxes with.” Beyond that, there are things that can be converted into money so quickly that they’re extremely money-like, followed by things that are increasingly less money-like. In this sense, “money” is a property, not a thing, and you can have lots of it (dollar bills, debit cards, checks) or only some of it (foreign currency, treasury bills, gold, etc.).

When I see people arguing, for example, that bank deposits earning 0.25% at the Fed are identical to treasury bills paying 0.25%, that seems to me to be an argument about the nature of money. Are those two things really identical? Or 99% identical? Or 90% identical? When interest rates change, bank deposits and treasury bills obviously become less perfect substitutes for each other. Does that mean that one or the other has become less money-like?

How money-like is debt? It depends on the debt. During the credit bubble of the aughts, debt skyrocketed, but normal monetary aggregates didn’t. And yet, that debt had much the same effect as a huge increase in the money supply.

I dunno. I agree that this is not a new question, but I also agree that it’s lately become a more pressing one. How can you properly do macroeconomic analysis in a world where no one even agrees anymore about what counts as money and what doesn’t?

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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