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Resolving the paradox of monetary discourse.

Students of economics are taught that money has three main functions, a unit of account, a store of value and a medium of exchange. On closer examination we find that these three sit uneasily together. For example, a store of value should increase in value over time, while a medium of exchange works best when the value is decreasing. All the while the unit of account should stay the same value!

In history we find many examples of these function being performed by separate instruments. For example the medieval bankers Ecu de Marc was purely a unit of account. Precious metals, land, shares can all be used to store value, while wampum beads, LETS, self-issued credit, and stamp scrip worked well as systems of exchange. With such a rich history to draw on, it is bizarre that anybody could think one instrument should do it all.

In the discourse around money we see different interests claiming that money is different things.

Gold is money

Money is and always has been, a creature of the state

Money should be a medium of exchange and nothing else

it has become apparent to me after some time was that these contrary positions do not result from different people's impartial analyses reaching different conclusions. Views on money are very tied to our world view.

For rich people, money is the very thing that distinguishes them from paupers. Having money means not having to work because the money works for them 24/7 through its store of value / investment functions. Most of the money they have is never intended to be exchanged for anything.
But for poor people, money is what they use to buy bread. They struggle to exchange work for essentials, usually because the medium of exchange is scarce. The store of value function holds no interest for them because they have no value to store.

It is not that one view of money is 'right'. But that different views serve different interests. I notice these two main monetary discourses map onto class interests.

The monied classes prefer to view money as a commodity because as they desire commodities which can easily be put to work, and money is mobile, liquid and has special protection in law. The working classes are more concerned with money that circulates, because they depend on its good circulation for employment and for the essentials of life.

These rules will manifest themselves in different policies in different contexts. For example in Britain at the moment the Labour leader Jeremy Corbyn advocates People's Quantitive easing, a policy to increase the amount of money in circulation; the Conservative party prefers austerity, which makes money scarce to the point of deflation - deflation of course increases the purchasing power of money.

But in the late 19th Century USA, the same dichotomy can be seen but within a metals paradigm. William Jennings Bryan was leading the charge to monetise silver in addition to gold, thus increasing the depressed money supply in the interests of the farmers. Meanwhile McKinley won the election on the basis of keeping to the gold standard which restricts the amount of money which can be created.

There is absolutely no need for these two class interests to be opposed, at least not monetarily speaking. There is no reason that the quantity of medium of exchange should be identical to the quantity of bank lending.

Comments

"a store of value should increase in value over time, while a medium of exchange works best when the value is decreasing"

I'm not sure I agree with that. I'd say that, for a monetary store of wealth, there's no need for its value to increase, it merely has to have a lower 'carrying cost' than physical alternatives; and, ideally, a medium of exchange should hold its value all the time it's actively circulating but lose vaue when it stagnates.

The contradiction I always focus on, when I'm trying to draw people's attention to the issue, is that money's value as a medium of exchange depends on it circulating, but its value as a store of wealth depends on it not circulationg.

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