Money

What is money?

• “Money (nomisma) by itself is but a mere device. It has value only by law (nomos) and not by nature.”

• Aristotle defined money as the measure of value.

John Kenneth Galbraith

Famous Quotes:• "The study of money, above all other

fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.”

• "Under capitalism, man exploits man. Under communism, it's just the opposite."

(1908 – 2006)

Money

• Nomisma (law, or binding custom = nomos); doesn’t appear until 400BC in Herodutus; doesn’t appear again until 400 years later.. This word nomisma doesn’t appear in ancient Greek texts. Concept of nomisma is suppressed! Introduced by democratic Greek polis.

• Battle emerges, traced back to Aristotle’s time

• Will money be controlled by private groups, or whether it is controlled by public institutions (government); latter gives you at least the chance that money control will be directed for the common good.

• Greenbacks were not a promise to pay something else; not borrowed from banks; did not create a debt or interest payments; government had power to determine where it entered circulation.

• Are we removing a concept from language? The concept of money? Money is NOT credit.

• General Butler: “Greenback is a certificate of value” (not debt). • Money is an abstract legal power; a power of government or

society (not a promise to pay; does not represent gold, silver, etc.) Aristotle: “money exists not by nature but by law”

• Locke and Franklin: money as a pledge for wealth, rather than wealth itself.

• Del Mar: money is defined by law: function to pay debts and taxes.• AMI: abstract social power embodied in law, as an unconditional

means of payment.

• If gold is made money, then those who have the gold control the money supply! Removing monetary power from society!

• There is a monetary power deriving from society, whether you admit it or not**. Fed is a 4th branch of government already, but out of control. Must be recognized as such!

• Nationalize Federal Reserve.

• Adam Smith: mis-defines money. Aristotle, Plato, Bishop Berkeley, etc. Defined money (40 years before Smith); Benjamin Franklin wrote a book on money, as well as Locke!

• Smith introduces mythology of money into economics (from which it has not recovered). Must come up with a good, basic definition of money!

• Smith defines money as gold and silver (without any regard to the mark on the coin!) Reg

• 90% of mortgages backed by US government!• “Poor people have cheated us!”- Wall St.• 1980-2008 steady decline in interest rates: constant boom in

bond markets, stock markets. • Lower interest rates lower standard of living! Does NOT re-

channel investments into productive activities; asset price inflation• European central bank – says its illegal for governments to

“monetize their debts”! Greek crisis, etc. Labor squeeze. • Latvia- public sector wages falling 30%!! ½ schools closed down;

doctors told to emigrate; all of Europe being sold the same system! Governments that do not cut their budgets, below 60% of GDP, will be fined!

• Why? NOT ENOUGH MONEY!!! ? Can’t pay both people and banks!• Debt peonage: (most banks in Sweden?)

• Few domestic banks in Latvia, Lithuania, etc. Foreign banks control.

• Government should supply banks (100% reserve) with money. Government “postal savings banks”-function like savings banks used to in the US. Government creates credit.

• **Financial system was criminalized in the US during the 1980s** Banks don’t supply productive capital; that’s the function of stock market and venture capital

• Parasitic capitalism

• When increase in debt exceeds increase of capital gains; the point at which things are insolvency…

• Not a cycle! (as in Schumpeter’s), but a ratcheting effect, ratchets up and up and up…

• What has recovered? Not the economy, but a new power elite! The recipients of the bailout! AIG, $2 trillion cash for trash swap with commercial banks, etc.

• Give away = largest transfer since the railroad land grab by barons in 19th century

Parasites…

• Lower american wage standards by 30% or else banks won’t survive in present form!!! Obama and republicans keep debt in place way beyond ability to pay- save the banks!

• Iceland, Latvia, Lithuania, etc. How far can you reduce living standards before labor fights back?

• Banks are parasitic- extract, siphon off hosts nourishment; but you must also numb the host-e.g. a chemical, that immediately deadens nerves; enzyme released into the brain, so that host thinks parasite is part of it!

• Japan and Germany: equity against ownership?? Banks interests and customers coincided!

• McCarthy argues that mafia needed in Japan to fight communists! Needed Japan dependent upon US.

Producer A

Producer B

Market exchange between independent producers

Producer C

Within firm A

(non-market context)

Within firm B (non-market context)

Market Context between organizations

2

5

7

10

12

1990 1997 2003 2010

US Unemployment Rate1990-2010

Year

Pe

rce

nta

ge

0.02

0.04

0.06

0.08

0.10

0.12

1978 1984 1990 1996 2002 2008

Rate of Profit for US Corporations (1978-2008)Current and Historical Cost of Net Private Fixed Assets (NPFA)

Year

Ra

te o

f P

rofi

t (P

/K)

Ratio of Corporate Profits (before taxes) to NPFA

Variables

PR historicalPR current

Inequality

30.0

32.9

35.7

38.6

41.4

44.3

47.1

50.0

1970 1980 1990 2000 2010

Percentage of Total Income Earned by the Top 10 Percent

United States (1970-2009)

Year

Pe

rce

nta

ge

10

15

20

25

30

35

40

45

50

55

1976 1984 1992 2000 2008

Financial Debt and Financial Profit as a % of Total Debt and Total Profits

1976-2008

Year

Pe

rce

nta

ge

Variables

Debt %Profits %

1.8

2.0

2.1

2.3

2.4

1996 2000 2003 2007 2010

Total Debt to GDP Ratio


Year

Ra

tio

0.00

1.60

3.20

4.80

6.40

8.00

1976 1982 1989 1995 2002 2008

Ratio of financial and Non-Financial Business Debt to Private Investment


Year

De

bt/

Inve

stm

en

t R

ati

o

Variables

NF Debt/IF Debt/I

0.0

0.1

0.3

0.4

0.5

0.7

0.8

0.9

1.1

1.2

1976 1984 1992 2000 2008

Ratio of Financial Debt to Total GDPUnited States (1976-2008)

Year

Fin

an

cia

l D

eb

t/G

DP

0

20

40

60

80

100

1976 1984 1992 2000 2008

Financial Borrowing as a Percentage of Total BorrowingUnited States (1976-2008)

Year

Pe

rce

nta

ge

0.4

0.5

0.6

0.8

0.9

1.0

1976 1984 1992 2000 2008

Ratio of Household Debt to GDPUnited States (1976-2008)

Year

Ra

tio

0.2

0.4

0.7

0.9

1.2

1.4

1976 1984 1992 2000 2008

Ratio of Mortgage and Household Debt to Disposable Income


Year

Ra

tio

of

De

bt

to D

isp

osa

ble

In

co

me

Variables

Mortgage/ITotal Household/I

0.0

5.0

10.0

15.0

20.0

25.0

1976 1984 1992 2000 2008

Total Household Debt, Mortgage Debt, and Personal Income


Year

x L

arg

er

than in 1

976 (

=1)

Variables

Household DebtMortgage DebtPersonal Income

40.0

68.0

96.0

124.0

152.0

180.0

1976 1984 1992 2000 2008

Total Household Debt as a % of Personal Compensation and Income


Year

pe

rce

nta

ge

Variables

% of Compensation% of Income

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

1996 2000 2003 2007 2010

Total Homeowner Financial Obligations Ratio


Year

Ra

tio

0.00

0.05

0.10

0.15

0.20

0.25

0.30

1990 1995 2000 2005 2010

Ratio of Loan Sales to Loans HeldUnited States (1991-2008)

Year

Ra

tio

*Ratio of Secondary Market Loan Sales to Commercial and Industrial Loans Outstanding

-500

0

500

1000

1500

2000

1976 1984 1992 2000 2008

Borrowing by SectorUnited States (1976-2008)

Year

Bill

ion

s o

f D

olla

rs

Variables

FinancialHouseholdNon-Financial Corporate

AExporter

BImporter

Sugar

Coins

Trade Circuit: Tobacco for Woolen textiles

STEPS1. Blue stickman exports

woolen textiles for foreign currency (cowry shells).

2. He trades woolen foreign currency for tobacco.

3. He then imports tobacco, selling it for domestic currency.

4. He purchases more woolen textiles with domestic currency, in order to export….

[go to step 1]

Bills of Exchange and Payment at a Distance

Bill of exchange

CIRCULAR FLOW: MONEY AS MEDIUM OF INDIRECT EXCHANGE

$$

A

POSSESSES WANTS

A SUGAR SPICE

B SPICE GRAIN

C GRAIN SUGAR

$$

SPICE

BC

GRAIN

$$SUGAR

MONEY AS MEDIUM OF INDIRECT EXCHANGE

$$

A

POSSESSES WANTS

A SUGAR SPICE

B SPICE GRAIN

C GRAIN SUGAR

$$

SPICE

B

CGRAIN

$$SUGAR

A

B

C

D

E

‘Chain Generalized Exchange’

‘Net Generalized Exchange’

A

B

C

A B

C

B

C

A

1 2 3

‘Net Generalized Exchange’

A B

C

A B

C

CIRCULAR FLOW: MONEY AS MEDIUM OF INDIRECT EXCHANGE

POSSESSES

WANTS

A SUGAR SPICE

B SPICE GRAIN

C GRAIN SUGAR

Debt as medium of indirect, but asymmetrical exchange

IOUA

SPICE

B C

SUGAR SUGAR

SPICE

Debt as medium of indirect, but asymmetrical exchange

$ IOUA

Lending $10

B C

SUGAR SUGAR

Lending $100

Money

Economy & Finance

Transcript of Money