The notion that currency or money was always and is today merely a "record keeping device" is highly misleading. Cash transactions are quid-pro-quo exchanges even now, and as such must be distinguished from mere record-keeping, with debts yet to be, or never, settled. 1/n
A settlement medium, like gold coin once upon a time, or Federal Reserve balances today, is categorically distinct from a credit medium. To conflate them is therefore a serious category mistake. Sometimes clever metaphors are too clever by a half! 2/
Of course for certain purposes the error may be harmless. But for others--like trying to come up with a correct understanding of historical exchange systems and the role trust played in them--it's a recipe for misunderstanding.3/
If Wimpy offers a gold coin for a hamburger today, he's not proposing a credit transaction as he would by offering to make compensation on Tuesday! The joke of course is that no one wants to give Wimpy the hamburger in the 2nd case. So should they also refuse it in the first? 4/
These considerations are why I've never been a fan of Kocherlakota's oft-cited and clever but, IMHO, fundamentally misleading paper: google.com/url?sa=t&rct=j… (Fin)

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More from @GeorgeSelgin

21 Oct
Thread: With all due respect to Jo, @Frances_Coppola, and @SteveBakerHW's other critics, and at the risk of being told I also don't understand public finances, I think Steve is right to be concerned.
Steve is hardly alone. In March, Fitch Ratings, noting that the UK's deficit, already at post-1960 record relative to GDP, will "increase to well over 120% of GDP over the next few years," cut its UK credit rating to -AA, a rating it recently re-affirmed. theguardian.com/business/2020/…
Just recently Moody's also downgraded UK debt, to AA3, ft.com/content/117349… Of course, these are hardly "doomsday" ratings; and no one thinks that the UK is about to default. It's even possible that the folks at Moody's and Fitch also don't know their public finances.
Read 10 tweets
31 Aug
"I've been framed!" The Phillip's Curve pleads innocent. (Thread.)

I know what you're thinking: I'm supposed to be dead, or at least to be on death row, having been found guilty of causing the Fed to repeatedly over-tighten over the years.
But I've never had a chance to defend myself. And I think I deserve that much. I mean, its my 6th amendment right! And although I know I look guilty, I'm telling you, you've rushed to judgement.
I know I'm easy to suspect. After all, I've been guilty in the past. And I'm not especially respectable, let alone reliable. I'm also managed to alienate pretty much everyone-- first Monetarists and Austrians None thinks of me as at all upright. cato.org/publications/c…
Read 14 tweets
22 Aug
Thread: In this brief video, Steve Forbes says that there are "mountains of myths surrounding the gold standard, all of them wrong." But he himself subscribes to several: forbes.com/sites/stevefor… 1/
Myth #1: "When you see the price of it [gold] fluctuate, what you see is the value of the dollar fluctuating." Of course the dollar's value _in terms of gold_ fluctuates neither more no less than gold's value in terms of the dollar. The relevant question... 2/
...is, "which is fluctuating more in terms of the prices of goods in general?" Have a look at this chart comparing relative changes in the $ price of gold and the CPI since the end of the last recession, and decide for yourself:
Read 13 tweets
16 Aug
@dandolfa I believe very strongly that the claim that money is a "Store of Value" is one of the great errors of monetary theory. Of course money must have some such capacity to be useful; but that is just another way of saying that it mustn't be too perishable to be a convenient MofE. 1/
@dandolfa The idea that money is distinguished by its capacity to serve as an SofV is false. The best SofVs are typically not MofEs, and when these differ its the MofEs that are regarded as money. 2/
@dandolfa Suppose I _Defined" a car as (1) a means of transportation, and (2) a store of value. That double-barrelled definition would enhance our understanding of cars in the same way that the common double (if not triple) barrel definition of money has enhanced our understanding of it 3/
Read 4 tweets
16 Aug
Thread: 3 wrong theories of bank money creation: (1) An ordinary bank must wait for reserves (deposits) to come its way in order to make loans; if they seem to maintain an 5% reserve ratio, then they can only lend 95% or deposits received.
(2) An ordinary bank can create money equal to a multiple of reserves (deposits) received. So if it receives X dollars and maintain 5% reserves, it can lend 20 times X.
(3) An ordinary bank can create money "out of thin air," with no need to either possess or to acquire funds by which to finance loans it commits to make, and hence no need to worry about either its actual reserve or the cost of securing funds from elsewhere.
Read 13 tweets
23 Jul
Thread: I consider a return to a gold standard neither desirable nor possible. But like too many who also reject the idea, Michael Hiltzik @hiltzikm is long on contempt for the idea, but short on understanding of the gold standard's actual record.latimes.com/business/story…
Hiltzik says that "On the far right, the gold standard era is cherished as a beacon of economic stability. Modern economic thought finds that to be the opposite of the truth." But one needn't be on the "far right" to see merit in the "classical" or pre-1914 gold standard.
That ca. 1871-1914 system did prove stable in certain obvious respects: indeed, it was the only regime ever to combine the features of long-run price level stability and fixed exchange rates. Keynes himself recognized these virtues.
Read 27 tweets

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