I suppose that disputes about this will never end. But I am willing to die on the hill that says that fiat money is neither equity nor debt, that is, that units of it aren't "claims" of any sort.
This stand may seem bizarre because we're used to thinking of financial assets as claims to either real assets or other financial assets, and because accounting conventions, developed for the most part when there were no exceptions, don't allow them to be treated otherwise.
But fiat money _is_ an exception, because its a means for "final" payment. Other USD-denominated financial assets are claims to fiat Federal Reserve notes. But a Federal Reserve note itself isn't a claim to anything. The "buck" stops with it, so to speak.
Of course, you can trade Fed notes for goods, or pay parking tickets and taxes in them. But that doesn't make them "claims" to goods, or get out of jail cards. These are just things that Fed notes, being of course money, can _buy_.
When the Fed was established in 1914, its notes were genuine debt claims: IOUs to so much gold--not just money with which gold could be "bought" at some varying market price.
Today, those notes are still reckoned "liabilities" on the Fed's balance sheet. But they are no longer redeemable, fixed claims to any of the Fed's assets. Yet they aren't "equity," either: possessing them doesn't make you one of the Fed's shareholders.
Fed member banks do own stock in the Fed Reserve Banks, but their shares, which they must purchase o join, are proportional to their paid-up capital and surplus, not to their holdings of Federal Reserve notes or reserve credits. And the shares can't be sold or transferred.
So, the Fed is weird sort of business! And fiat money is a weird sort of financial asset. Just accept it.

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More from @GeorgeSelgin

25 Jul
As a _person_ I have moral principles (believe it or not). But I am a consequentialist when it comes to arguing matters of economic policy, for two simple reasons:
(1) though it helps us to anticipate the consequences of various policy choices, economic analysis tells us nothing about whether those choices are or are not "moral" in the way that deontological ethics might;
and (2) different people hold different moral principles. Economics may allow me to convince them--in some, not all, cases--of the merits or shortcomings of some policy, without asking them to change those principles.
Read 5 tweets
25 Jul
Actually, although she has a valid underlying point, I think @AOC isn't quite right here. In general, genuine inflation (a persistent, upward movement in many prices) needn't be a uniform movement, for several reasons. 1/n
It's true that economists believe that, the the absence of cyclical unemployment, monetary expansion tends to raise absolute prices, but that it has relatively little if any influence on relative prices in the long run. Money is, in other words, "neutral" in the long run.
But granting for arguments' sake this long-run neutrality proposition, it doesn't follow that the we can dismiss excessively easy money as a potential cause of inflation because some prices are rising faster than others.
Read 11 tweets
24 Jul
Thread: Me and financial laissez faire. To the charges of extolling the virtues of some past "free banking" arrangements (but _not_ the U.S. version!), and urging that others recognize the possibility of market-based monetary order, I plead guilty. But...
I deny being a knee-jerk proponent of monetary or financial laissez faire, and I regret that some of my critics either read me that way, or erect a cardboard-cutout knee-jerk laissez-faire "version" of me, the better to easily knock it down!
My position has long been, not that government intervention in money and related industries is bad per se (like practically all economists, I'm a consequentialist), but that to understand what such intervention really accomplishes one must understand what would happen w/out it.
Read 20 tweets
23 Jul
I agree 100% with Steve's take on fiat money. It's value doesn't rest upon it's being a redeemable claim to anything. The mere fact fiat can purchase things at varying prices, including "get out of jail" cards from tax authorities, doesn't make it a "claim" to anything.
Because the U.S. government can decide at any time to alter the # of fiat dollars it takes to satisfy tax obligations, those dollars are not "claims" to any pre-agreed upon amount of "get out of jail" cards (or gov't services or whatever you choose to call what tax payments buy).
In contrast, a commercial bank is not free to say to its depositors, "We regret to inform you that we've raised the price of Federal Reserve notes, so that it will now take $2 of your credits with us to purchase a $1 bill."

A "claim" is a debt is a fixed-price commitment.
Read 10 tweets
22 Jul
Evidently @RaulACarrillo didn't like my argument: he tweeted two snide dismissals, only to delete them before I could reply. But as they are still visible (I include a screenshot of one) I will reply to it.
Now, Mr. Carrillo, my comments referred only to the question of "monopoly," the definition of which is or ought to be known to any 1st year econ student, or anyone who has a decent vocabulary.
(That Wikipedia, which you also take me to task for citing, happens to offer the stnd. definition hardly makes it wrong.)

My point is that entry into the banking business is not so strict as to allow that business to be characterized as a "monopoly"
Read 4 tweets
22 Jul
I enjoyed hearing @MehrsaBaradaran and others discuss strategies for banking the unbanked during the recent house hearing. But I want to push back against something Mehrsa said then.
She said, "We give banks a charter, and they have a monopoly on payments and financial transactions and credit." With all due respect to Mehrsa, this is abusing the plain meaning of terms.
To refer just to Wikipedia's definition (the first definition that comes up on Google) "A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity."
Read 10 tweets

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