The Anti-Concept of Money
Merriam-Webster says money is:
“something generally accepted as a medium of exchange, a measure of value, or a means of payment.”
“Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The main functions of money are distinguished as: a medium of exchange, a unit of account, a store of value and sometimes, a standard of deferred payment. Any item or verifiable record that fulfils these functions can be considered as money.”
With the anti-concept of employment, one could not say the definition is wrong by arguing that slavery doesn’t exist. The only way is to demonstrate that slavery and work-for-hire are not the same. And with money, one cannot say the definition is wrong by arguing that exchange is not facilitated by a medium.
The only way is to demonstrate that money and credit are not the same thing. An item and a “verifiable record” of an item are not the same. It is wrong to lump them into the same concept, and insidious too.
Credit vs Money
Suppose you check your coat at a restaurant. The clerk gives you a piece of paper, a receipt with your coat number. Do you consider the coat check to be the same as the coat itself? If the word for the paper coat check receipt is “coat”, then what is the word for the garment which keeps you warm when you walk out the front door, into the freezing rain?
The anti-concept of money obliterates the distinction between credit and money. Like the distinction between the coat claim check and the coat, it is a distinction between the actual physical thing and a piece of paper issued by a counterparty responsible to return to you that thing.
No one would make this error regarding paper receipts vs. coats. But nearly everyone makes it regarding paper currency vs. gold coins.
As explained in the Introduction to this Anti-Concept of Money series, the word employment attempts to lump together slavery with employment. The word money attempts to unite both a monetary commodity and a promise to pay the monetary commodity. Thus it obliterates the distinction between money and credit, between a gold coin and a promise to pay a gold coin.
Redeemable vs Irredeemable
Once the distinction between money and credit is blotted out, then the stage is set to wipe out another distinction. Bank notes were once redeemable for gold coins. Now, they are irredeemable. They still work (somewhat) like promises to pay, but now the promise is explicitly dishonored. So the anti-concept money beguiles us to into assuming that three different things are the same: (1) gold, (2) a bona fide promise to pay gold, and (3) irredeemable central bank notes.1
Ironically, it seems easier to confuse the irredeemable note with gold than the redeemable note with the gold. During the time of the gold standard, people realized that the note and the coin were not the same. Today, with only irredeemable notes circulating, the distinction seems harder to conceptualize.
It may help, when struggling with the anti-concept of money, to ask questions about the coat receipt analogy first. Would it improve matters, if the restaurant closed, all the garments were gone, and the receipts were no longer honored? Or would this make matters even worse? A default by the restaurant simply removes the last link between its paper receipts and the physical reality of the coats.
If someone openly asserts that an irredeemable central bank note is the same as an honest promise to pay gold, and that this is the same as gold itself, it’s easy to see why this is wrong.
So, to get away with it, the purveyors of this premise smuggle it via an anti-concept for money. The anti-concept bundles these three different things into one word, as if there were a single common essential that unites them. It is true that all three can serve as medium of exchange. Just as it is true that a slave and an employee can both do work. But there is no common essential in these different concretes that the pseudo-concepts of money and employment attempt to unite.
A child can use the term speed to mean degree of motion. That’s good enough for his limited understanding of the world. He can think the sun rises in the east. He can think of mass as meaning weight, and light as traveling instantly. These are all approximate understandings. While they may be good enough for a child, they are not sufficient for a scientist.
A child can use the term money to mean whatever he gets paid for his allowance, and whatever he pays to get the video game he wants. To him, the word might even mean, approximately, “daddy credit”. This approximate understanding of money may be good enough for a child, but wholly insufficient for a scientist.
If monetary science is to be a proper field of study, then money must be a proper concept. It will not do, to smuggle various false premises (which happen to serve the socialists) into the very definition. Money is not credit. Conflating the two leads to all sorts of confusion downfield.
The Proper Definition of Money
The proper definition of money is: the most marketable commodity.
The genus of money is commodity. Money must be a physical good. This is because man is a physical being who lives in a physical world. He sometimes has a need for final payment, for something he can take home. He does not want to take home a coat claim check, much less a piece of paper printed by a now-defunct restaurant. He wants the actual coat. In the case of money, he wants to take home, not a piece of paper promising to pay money, much less a piece of paper that once meant a promise to pay but which was dishonored long ago. He wants the actual money itself.
Sometimes—not in all cases, but in certain ones—only a physical, tangible object serves. In such circumstances, it is of no use to trade one counterparty’s credit instrument for another. If one does not like the interest rate in a bank account, one does not take home zero-interest bank notes.
This, by the way, serves an important economic function. It empowers savers to force an uptick in the interest rate. Consider that consumers in a grocery store can force a downtick in the price of steak. They do so by not buying. The grocery store must lower the price, in order to move the inventory (which will soon spoil). Similarly, if a saver withdraws his gold coin from a bank, the bank is forced to shrink its balance sheet. It must sell a bond, which pushes the bond price down which is equivalent to pushing the interest rate up.
The differentia of money is: most marketable. This refers to the cost one incurs to trade in and out of it—i.e. the bid-ask spread. Imagine trying to use oil as if it were money. Not only is it toxic, flammable, and perishable but enough oil to buy a decent new car would fill a swimming pool.
Who has an empty swimming pool? If you wanted to unload this amount of oil, you might have to look hard to find someone who would take it. If you needed to dump the oil right away, you would have to give it away at a discount. Conversely, if you needed oil and didn’t have time to wait, you would pay a premium. Oil is less marketable. Only a few specialists deal in it.
Gold is the most marketable good. Even today, nearly a century after the US government defaulted on its obligation to pay gold to anyone who redeemed its paper notes. A swimming pool of oil’s worth of gold is about the size of a mobile phone that you can easily put into your pocket.
One word is often used right after the word money: supply. According to Wikipedia:
“money supply (or money stock) refers to the total volume of currency held by the public at a particular point in time.”
Notice that the definition implies that supply and stock are equivalent. A child might make a similar error, believing that mass and weight are the same.
But supply and stock are different, the way speed and distance are different. Supply is an amount per month of something. Stock in an economics context means quantity. Quantity is just a raw amount.
Money (whether gold, gold-redeemable notes, or irredeemable notes) is a stock. One should speak of the quantity of money. Whereas each good has a supply. One should speak of the rate of goods production. A rate of production is a flow.
The quantity of money is tons of gold (or just a number of irredeemable dollars, but let’s go with tons here for the sake of clarity). Rate of goods production is tons of wheat per month.
Comparing tons to tons/month is not even wrong.3
If the money supply changes, it is a change in quantity. This is expressed as tons/month. But goods supply is already tons/month. A change in goods supply is tons/month/month. These cannot be compared either, the way that speed cannot be compared to acceleration.
Any first-year student in science or engineering understands why such a comparison is invalid. These curricula teach dimensional analysis, which means looking at the dimensions, or units, of each term. One can only compare terms when they have the same units.
Any attempt to compare money supply to goods supply fails at a fundamental level.
This is a conceptual error, and it’s embedded in the rationally unusable mental unit itself. Thus, it is obscured from view, sheltered from scrutiny by the anti-concept of money supply.
There is propaganda value in this obfuscation. The purpose of making this invalid comparison of two incomparable things is to offer an explanation of why consumer prices change.
Most people believe prices rise when the money supply is increasing faster than the goods supply.
Goods are produced to be consumed (typically, soon after they’re sold). X tons of wheat are grown every year, and then it’s baked into bread and eaten. The same grain of wheat does not keep sloshing around the market. But money is not consumed after a transaction.
The same ounce of gold (or the same dollar) keeps moving around the market. It can be spent again and again, to bid up the prices of many things. Suppose Mary pays some dollars to Joe for his computer, then Joe pays those same dollars to Bill for his car, next Bill pays those same dollars to a grocery store for food, and after that, the grocery store pays Mary’s original dollars back to her, as wages, and so on. What stops the process? Why do prices not rise without limit, even if there is no increase in the quantity of dollars?
If one accepts the anti-concept of money supply, one is practically blocked from even being able to ask this question. And it is indeed an important question. If monetary science is to be a proper field of inquiry, it must ask and answer it.
Quantity Theory of Money
The anti-concept money supply smuggles the premise that prices are a function based on comparing the quantity of money to the supply of goods. There is even a pseudo-equation for this!
MV = PQ
M the money supply (quantity)
V the velocity (number of times per year the average dollar is spent)
P the general price level
Q the quantity of goods and services (quantity / year)
The anti-concept money supply obliterates an idea.
Recall that employment mixed essentially different things into one word. Money supply does it too, mixing (1) gold mining, (2) the creation of honest credit, and (3) the issuance of irredeemable credit by a central bank. Conflating these very different processes, discourages any thought of their differing causes and their different effects.
It is a cognitive sleight of hand, diverting attention from the question of what is money, to focus only on the quantity of it—heedless of whatever it may be.
I will leave this as a rhetorical question: would you expect gold mining, sound credit, and counterfeiting to work the same?
The diversion works, because these three different processes are presumed to have the same single effect, namely higher prices of goods.
It should be obvious that gold mining works nothing like Quantitative Easing. Their causes are not the same, their mechanisms are not the same, and their effects are not the same.
Additional Resources for Earning Interest on Gold
If you’d like to learn more about how to earn interest on gold with Monetary Metals, check out the following resources:
In this paper we look at how conventional gold holdings stack up to Monetary Metals Investments, which offer a Yield on Gold, Paid in Gold®. We compare retail coins, vault storage, the popular ETF – GLD, and mining stocks against Monetary Metals’ True Gold Leases.
Adding gold to a diversified portfolio of assets reduces volatility and increases returns. But how much and what about the ongoing costs? What changes when gold pays a yield? This paper answers those questions using data going back to 1972.