Fatal Misnomers: “Money”

According to the Apostle Paul from New Cambridge, “Money is of no use to us until we get rid of it (Economics, 2010, p.458).” By design or by chance, he in that particular regard is a short run away from Irving Fisher at New Havens (The Theory of Interest, 1930, p.5). 

            Ever since the outset of Uncommon Era in 1936 CE, side by side, “money” has been a holy grail to the “intellectually honest.”

The name in the “theory.” Macroeconomists say “liquidity preference” while meaning to “get rid of money.” An “autonomous” question to follow: What on Earth is “money”? Is ‘liquidity” a good of utility or a bad of disutility?

             They say money’s found three faces new; that is, the unit of account, the medium of exchange and a store of value. That’s a nice try but off the mark, whether in the short or long run of distance. The raison d'être of money, according to the Apostle before any disciple else, is a medium of exchange. If so, two new faces and a half of the three are out.

             First, the unit of account is not money but the name of legal tender. Second, so many things and matters can and do work as medium of exchange. In twisted, money is a medium of exchange while money is not the medium. Third, money does no store but loses the so-called “time value of money.” (A right name would be “the value of time” in between the present and the future.)

             In the mean run, we do firmly believe in the Apostle that his intention is as good as the purpose of “getting rid of the useless.” More specifically, “getting rid of,” or equivalently “spending” of Irving Fisher, is for either acquiring something virtual or getting rid of something vicious. Yes, that’s for a single word “utility.”

              In economics of general theories, “the invisible hand Adam Smith talked about” shall not let in the market such good intentions as “benevolence,” compliment, “preference,” wish and “equilibrium" in peace. We are required to be harnessed with “money” or another of so many mediums. A good intention alone does not lead you to demand as in economics jargon, Thou shalt do thy homework.

             Liquidity preference, demand for money, interest, employment and the gross national income in wage units, aggregate demand? And, so many words of good intentions of variable kinds?

             To get hold of the particular holy grail "money," shall we “Wait until Dark” (to Audrey Hepburn)? We raise the question owing to a particular “theory,” as it were: “All roads to the Eternal Darkness are paved with good intentions."           

The name in practice. Back in real to the name “money,” we for the sake of convenience copy from European Central Bank:

The types of liabilities included in the monetary aggregates are defined on the basis of liquidity – i.e. how quickly and easily they can be converted into cash or used for payments:

M1 (narrow money) is the most liquid measure of money, comprising currency (banknotes and coins) in circulation and overnight deposits.

M2 (intermediate money) includes M1 plus deposits with an agreed maturity of up to two years and deposits redeemable at notice of up to three months.

M3 (broad money) includes M2 plus repurchase agreements, money market fund shares/units, and debt securities with a maturity of up to two years issued by MFIs.*

Longer-term liabilities of MFIs are excluded from the definition of M3 as they are regarded as portfolio instruments rather than as a means of carrying out transactions. Nevertheless, they may be regarded as substitutes for some of the components of M3, at least as they approach maturity.

*Note: MFI for the monetary financial institution   

 

Notably, European Central Bankers call money “liabilities.” At any rate if in Euroland, the general “money” and the macroeconomic “liquidity” are duly conceived and legally born as “liabilities.”

             Come to think of it, Economy of products and assets is conceived only on my side  of one while Money has been born with two sides: my credit and your debt at the same run. We may additionally note that a “debt” when in financial accounting is generally called a liability.

             Money has a shadow! 

             Die Frau ist nicht ohne Schatten (partially in debt to Richard Strauss).

A reasonable doubt. Is there not “Money in the short run” as opposed to “Money in the long run”? There surely are according to ECB.

             The money is “M1” in the “short” run, that is, in the “narrow” sense; after all in GAMP (for generally-accepted macroeconomics principles), a run is as interspatial (L^-1) as a sense is. Granted, we when in Cambridge do not care any run longer than “overnight” of deposits. On the flipside, some of us have the “propensity” not to care about the times post mortem “in the long run.”

             Where in macroeconomics is the place for all the other definitions of money or more broadly non-money mediums of exchange?

Eppur si muove! The rest of us, the Apostle included, prefer liquidity in the veil of money; an  that as strictly limited to the “shortest run the rational thinking allows”; to consumable products in the naked with no dress; whereas all consumption is per period, period.

             After a full circle: It’s the utility per period (M∙U∙T^-1), your Honor!

The Great Escape (from Angus Deaton, 2013) fortunately by, of and for macroeconomists. All that matters to us is “real quantities,” which when “in the short run” (T⁰) are constant and variable at the same "time." Thank goodness, three real oranges plus five real apples, for instance, makes eight “real quantities” either in terms of apple or orange. À votre santé!

The Emperor is Naked!