Tuesday, January 10, 2017

A New Monetary System From Scratch, Part 7: Decentralized Recordkeeping


Andy, the proud owner of the fastest mule in the universe, was planning to start fortnightly round-trips to the village (see Part 6), taking apples with him to sell to the villagers, while buying copper from them. He would sell the copper once he got back in town.

Andy had a problem to solve. His trade with the villagers was going to be a deficit trade: if things went as planned, on every trip he would sell apples worth (market price) SK400 and buy copper worth SK1,200. This would have posed no problem if the village had been on-the-grid, but as things stood, there was no connection to the ETRS (see Part 4) from anywhere near the village.

Andy had come up with a solution to his problem. He presented it to the central-banker whose co-operation was required.

Andy suggested that the central-banker could issue central bank credit notes with, say, SK100 face value. The bearer of the note would be entitled, upon handing the note over to the central-banker, to a credit entry on her account in the central bank ledger. This would allow a villager to sell copper to Andy and get her account credited for the sale once she was in town for business – usually once a month. If she wasn't going to attend the town market, she could buy goods from a fellow villager who was, and who could then present the note(s) to the central-banker.

The central-banker, interested in expanding the reach of his new institution, saw this as a great opportunity for the central bank to bring the village more fully under its influence. He approved Andy's request and told him to come back the following day, as it would take some time to print the credit notes.

The following day, before making any entries, the central-banker printed out an account overview:



BANK OVERVIEW

Deb(i)ts/LiabilitiesCredits/Rights





xxxx

xxxx

xxxx

xx50Andy


xx

xxxxxx






Andy's positive balance of SK50 reflected the fact that Andy had previously received bananas worth SK100 from Betty, given apples worth SK100 to Carol and apples worth SK50 to Seven.

Next, the central-banker gave ten credit notes, with a face value of SK100 each, SK1,000 in total, to Andy. Then he debited Andy's account with SK1,000 and credited a new account called "Credit notes in circulation" with SK1,000. He printed out a new overview:



BANK OVERVIEW

Deb(i)ts/LiabilitiesCredits/Rights




Andy9501,000Credit notes in circulation

xxxx

xxxx

xxxx

xxxx

xxxxxx






The central-banker explained the situation to Andy:

As long as Andy remained in sight of the central-banker, it was as if Andy had had two accounts in the central bank ledger: one with a positive balance of SK1,000 and one with a negative balance of SK950. What really mattered was the net balance, which was so far unaffected. Andy had no liability to give goods to others; he had a right to take goods worth SK50 from others without incurring a liability.

Once Andy left the central bank premises, the central-banker became unaware of his net balance/position. Recordkeeping became decentralized. From that point onwards, the central-banker had to assume that Andy had a net liability worth SK950. If he was in possession of credit notes which reduced his liability recorded in the ledger (SK950), or even cancelled it altogether, it was up to him to prove this to the central-banker by presenting the notes to him. Once he did this, the central records could be updated to reflect Andy's actual position. (It was not a case of Andy paying a debt by handing over the notes.)

The central-banker wanted to make it very clear that this was not a loan of credit notes from the central bank to Andy. Andy was not obliged to return any credit notes. Having got rid of the credit notes by buying goods, and in this way having incurred an actual liability, he could sell goods to someone and thus get rid of his liability.

The effect of the issuance of credit notes was to introduce a lag between a trade and the reporting of the trade's effect on the trading partners' position[1] (their credits or liabilities); there was no real-time netting of credits (gifts given) and debits (gifts received) when credit notes were involved.

The logic behind the recordkeeping was unaffected by the issuance of credit notes. A net liability was still a liability to give goods to others. A gross liability recorded in the central bank ledger was assumed to be a net liability until the account-holder proved otherwise by presenting credit notes to the central-banker. A delayed netting of debits (personal account) and credits (credit notes) was no 'debt repayment', but a delayed update to the records.









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[1] What is reported is not the trade per se, but the amount by which the trading parties' purchases exceed their sales, and vice versa. Usually there is no barter element involved; that is, there is only one buyer and one seller in a transaction; goods flow only in one direction; there is only one trade, not an exchange of goods (two trades).

191 comments:

  1. I have read this through several times without becoming satisfied that I have complete comprehension. Sorry.

    Do I have this right? The central bank overnight whipped up notes and gave them to Andy the next day. I think the central bank could have also whipped up apples (that would be a fancy feat!) and given those to Andy.

    The central bank ledger would have read the same either way. Only the notation would change from "credit notes in circulation" to "apples in circulation".

    Am I making an accurate correlation?


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  2. It depends. If your apples had certain face value and served the same purpose as the credit notes -- which is to make it possible for villagers to get credit, recorded in the central bank ledger, for their sales in the village, outside the reach of the ETRS -- then the two would be comparable.

    If the apples were just ordinary apples, meant for eating, then the central bank would never create an account "Apples in circulation". It would make no sense.

    What I'm after is this:

    If a villager sold copper to Andy at the town market, within reach of ETRS, he would get his account at the CB credited for the sale instantaneously. Andy would instruct the CB (debit Andy's account, credit villager's account) through his ETRS gadget and the villager would get a confirmation of a credit entry to his account sent to his gadget.

    If Andy bought copper from a villager while in the village, they could not use ETRS (no connection). But Andy had no goods to barter, and he wanted to use the new monetary system also in this trade.

    Andy could write a personal note instructing the central-banker to debit his account and credit the noteholder's account, and give this note to the villager he buys copper from. This would be much like a 'check', if the villager could trust that his account will be credited upon presenting the note later to the central-banker. Right?

    What would probably command more trust in the villager than Andy's personal note would be a credit note issued by the central bank itself, signed by the central-banker. The villager would know that the credit to his account would not depend on a debit to Andy's account (which might have reached so far undefined credit limit). Actually, by holding a credit note the villager would already hold a credit in the central bank ledger, as a slice of the account "Credit notes in circulation".

    The credit notes without reference to the recordkeeping are just nearly worthless pieces of paper. Apples, if not rotten, have a positive value. Apples can be understood without reference to the recordkeeping. Credit notes cannot.

    Was this explanation of any help to you?

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  3. "Was this explanation of any help to you?"

    Yes, thanks. Now it's my turn to think on all this information. :-)

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  4. "If the apples were just ordinary apples, meant for eating, then the central bank would never create an account "Apples in circulation". It would make no sense."

    If I understand correctly, if the apples were for eating, the central bank would not create an account "Apples in circulation". It would create an account "central bank" with the same quantity. This account is reporting the central bank gave something, in this case apples.

    In the gift economy, there is no need to repay the apples to the central bank.

    All this said, with the central bank's action, don't we still have a physical expansion of the economy? It is still a gift economy, but isn't it physically bigger?

    I agree with you: from the central bank's perspective, a lag in reporting has been introduced into Andy's life. That lag was made possible by an acceleration introduced when the central bank created the credit notes and gave them to Andy. (Taking the "big picture" perspective, the central bank became a partner with Andy, giving Andy the means to make possible a copper trade not-otherwise-possible.)

    One of my take-away's is that (in gift economy theory) the authority of the central bank remains very important.

    We can continue to debate whether marks-in-the-record are money or not. :-)

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  5. Roger: What do you mean by "...an acceleration introduced..."? And by "physically bigger"? In what way is the economy physically bigger? I don't understand this. To me the introduction of the credit notes is a technical solution to a recordkeeping problem (no ETRS coverage in the village).

    I don't see the central bank becoming more of a partner with Andy than it is with any other member of the community. This of course implies that the central-banker has to give credit notes to others, too, if they need them -- an assumption I left unspoken. (The copper trade would have probably been possible on personal credit, but then the terms to Andy might not have been as favorable.)

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  6. Antti: Wellll, I got the acceleration idea from the initial event between central banker and Andy. That record changing event happened before the eventual copper trade.

    The "physically bigger" thought was more complex, even complicated. Andy went to the central bank " But Andy had no goods to barter, and he wanted to use the new monetary system also in this trade." To me, that implies that the trade would not have happened except for central bank participation. (The story does not offer any suggestions of what WOULD have happened otherwise.) With central bank help, the trade did happen and that would result in a larger physical economy.

    Of course, the whole goal of monetary intervention is to increase trade. I think we mean the combined physical volume and value of trade/exchange.

    Is this making sense?

    (The back-light on my LCD monitor seems to be failing, making the screen hard to see. I have a new monitor on order but I may be less prolific for a few days.) :-)

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  7. Roger: It makes sense. It's just that my focus is, for now, elsewhere. The new system will surely increase trade, but it is hard to argue that a certain trade would not have happened without the system being implemented. That's why I said "[Andy] wanted to use the new monetary system...". I didn't say he had to. All kinds of private credit arrangements would have been possible, if we assume that Andy was creditworthy (which he obviously was, at least in the eyes of the central-banker).

    I still don't see what you mean by "acceleration". To me the "record changing event", as I explained, was a "a technical solution to a recordkeeping problem (no ETRS coverage in the village)". Should the village have been covered by ETRS, no prior "record changing event" would have taken place, but Andy would have bought copper and acquired a negative balance. If we assume that Andy in our story proceeded to buy copper in the village and hand over notes worth SK1,000 to the seller, the outcome would have been exactly the same had it been possible to use ETRS.

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  8. Antti: I see what you are thinking. There would be no acceleration if a technical solution was never needed in the first place.

    But if the technical solution WAS NEEDED, what would be the timing effect? If the effect was neutral, then no solution was in-fact needed. If the effect was negative, the timing would have been slowed (which did not occur). The elimination of those two possibilities leaves only the assumption that acceleration of trade must have occurred.

    That is the pattern that my thinking typically takes. :-)

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  9. I wonder why Andy's creditworthiness is relevant if the central banker is adamant to explain to him that the credit notes aren't to be viewed as a loan?

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  10. Yes, Johan. That needs clarification. The central banker is the gatekeeper. He wouldn't allow Andy to run a negative balance if he didn't expect Andy to pay his debt to the community by providing goods later.

    Someone else than the banker or the bank stand to lose, always. It could be the shareholders, or other people with credits in the bank's books, or it could be the community/taxpayer.

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  11. Roger: What about lower transaction costs as a motivation for the use of central bank credit notes instead of private credit arrangements?

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  12. Antti: Andy had enough credits for a small purchase of copper but wanted to expand the trade (every event) by a factor of 3 by using credit notes.

    Lower transaction cost could have been a motivation for Andy.

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  13. Antti, sure. But if Andy (and anybody else) traded within the realm of the ETRS, he/they can run a negative balance regardless of the central banker's assessment. The gatekeeper role seems a bit haphazard right now.

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  14. Johan: I haven't been explicit enough about this. There is a credit limit for everyone, just like there is in a gift economy without record-keeping. CB will be the enforcer, but only as an agent of the community, or the ones bearing most risk (if risky credits come into picture).

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  15. Roger said: "Andy had enough credits for a small purchase of copper but wanted to expand the trade (every event) by a factor of 3 by using credit notes."

    Remember when Andy bought bananas worth SK100 from Betty? He had zero balance prior to that trade. So there is nothing new in the copper trade when it comes to Andy incurring a debt.

    I thought you were trying to say something specific about the use of credit notes, as compared to ordinary functioning of the new monetary system where trades are executed with the use of ETRS.

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  16. Johan: Had I started with explaining that the banker decides on, and sets, everyone's credit limits, would it have changed the way you read me?

    We'll end up there, but first I'd like to find out on whose behalf the banker acts as a gatekeeper and enforcer of the overall budget constraints. He could be doing that on behalf of the community or holders of "risky credits" (if/once those appear), or perhaps both.

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  17. Antti, not really: I knew there were some (vague) limits assumed. The problem is that once those limits become explicit and enforceable, it might also change how we interpret the meaning of the record keeping and how to think about whom the gatekeeper acts as a representative of.

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  18. I agree that in that case we need to specify from whom the banker takes orders from, whose interests he represents.

    But how do you see the (interpretation of the) meaning of the recordkeeping could change?

    An example: Andy decided to get some construction professionals to build him a luxurious mansion (estimated effort in skilo terms would be SK200,000) during the next six months while planning to sell apples worth SK5,000 during the same period.

    Others, seeing what Andy was doing, didn't like it. They would talk to the central-banker and there would be a common decision to put a hard limit on Andy's negative balance at SK10,000. If he had already passed it, he would be asked to bring the balance to that limit and given some reasonable timeframe to achieve it.

    In other words, people would decide that, for this purpose, Andy couldn't accept such big gifts from others while giving relatively little himself. The same dilemma would naturally arise in a gift economy without explicit recordkeeping, where someone was accused of being a "free-rider".

    Would you say that we should interpret the meaning of the recorkeeping differently once there is a hard limit on Andy's negative balance? Do you mean that it would be best to view it as something else than recordkeeping of gifts given and gifts received?

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  19. Hi Antti
    I don't know what Johan is trying to get at, but the example you present above is one of a direct democracy and as such is not really comparable to decisions made by real world loan officers working in banks - banks being those firms that grant credit to non-bank individuals or corporations, i.e. not modern central banks.

    And as soon as you have decentralised, incorporated decision making, questions of agency and accountability become more complex. It seems that in order to arrive at your pristine view of record keeping, you are forced to eliminate any concept of the firms that ascribes agency to the firm (or to the totality of individuals working within the firm, if you prefer).

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  20. I find the statement like | "There would be a common decision to put a hard limit on Andy's negative balance" | somewhat problematic. You may get away with it while presenting a narrative with only few economic agents. In a community, say, with tens or a hundreds of thousand members, such common decision isn't as feasible as the kind of ad hoc feature presented here. People in a larger society don't necessary know what Andy is up to; they may not agree on what such limit should be (should they even get to decide in a communal way) etc., etc. Moreover, is the -10,000 "hard limit" to be considered only Andy's, or is that the limit for *everyone*? Some kind of standardization seems to be required as the community grows, at least in my opinion.

    Once standardization is in place, it's fairly easy to come up with scenarios where people might find it meaningful to "trade"/"deal" in book-balances themselves. In a way, they could therefore be interpreted as means of payment (or money) or something to that effect. The gatekeeper might even have to compromise in some circumstances (thinking it's for the best of the community), granting overdrafts over the hard limit for some while not for others … but eventually creating political demand to treat such compromises as the banker's own liabilities; or even institutions to the same effect. In other words: the meaning of the record keeping could sprawl in many directions depending on the rules and institutional power structure surrounding enforcement of the rules/limits, should they become explicit and standardized.

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  21. Oliver and Johan:

    I'm just building this shit from scratch, guys! I have no problem with having the banker take instructions from some board of directors which represent holders of "risky credits" in the bank's books (once we have built those into the system). Would that change something about the logic of record-keeping? To me, there is still no 'money' owed to the bank or by the bank. Still the same "gift record" logic works.

    I suggest we get later to Johan's idea about trades in accounting entries. Of course the system can be played with (we humans are smart), and there is actually nothing wrong in that. If someone will agree to buy goods now but with the delivery of the goods taking place later, and then sell those goods back to the original seller before they are delivered, the goods in question never need to exist. And that's fine. That doesn't need to change the underlying logic of the system; it just means that non-banks take some of the responsibility for record-keeping, with some additional risk to them. I can see how in that case it is harder to see that 'money' doesn't really exist, but with some time, we'll all learn to see and appreciate the truth ;-)

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  22. Btw, welcome back, Oliver! I have to admit I had started to miss you. I'm serious.

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  23. Johan said: "The gatekeeper might even have to compromise in some circumstances (thinking it's for the best of the community), granting overdrafts over the hard limit for some while not for others"

    I'm more for this than for your standardization. People with investment ideas (by enriching themselves they also enrich the whole community, or something like that) would be granted more credit, while people suspected of free-riding would be frowned at. That's how it should be?

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  24. Gift-giving and -receiving is hard business. I'm not building any socialist utopia here ;-)

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  25. Hi Antti, I'm always here, just not always active to the same extent. Lots of work...

    Johan: like Antti, I'm not a fan of your standardisation idea. If anything should be standardised, it is the rules by which each individual's credit worthiness (credit limit) are to be assessed. Not the limits themselves.

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  26. "Credit worthiness" in this context is however a rather vague notion. That's why I want it exemplified in a proper way before being able to make further assessments of the nature of the record keeping. How would the community in the model go about assessing people's credit worthiness? If we go by the presented example (SK200,000/SK5,000), we are doing what is often thought of as a "cash-flow"/"profit" estimates. What if the estimates are changed… would it now be more possible to get the approval; and would that have to do with the (new) ratio between the numbers or with the intended enterprise itself, or some combination of those quantitative and qualitative aspects (which makes the situation even more difficult)? If we go by the former, we are already doing "money-like" calculations, especially in regards to those agents already near the *undefined* limit, and thus we are almost certainly bound to create pressure to define it more explicitly in the name of transparency and legitimacy. If the latter, we end up with a (political) problem already pointed out, i.e., who is going to decide such things in a growing much larger society, and to what kinds of enterprises?

    We are making borderline informal fallacies if we're answering such questions by (nearly) assuming our conclusions in the vein of "people who will enrich the community get more credit while people who impoverish it don't". We don't necessarily know which enterprises will enriches and which won't, and at what time frame. People are bound to disagree profoundly on many such assessments, especially if they are made in the name of the community's best interest; people will disagree profoundly about what's best for the community, who's the best decision maker and how such decisions should be made.

    Depending on how there's processes are manifested, I suspect people will also disagree about what those credit balances "really" mean.

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  27. Typo... "Depending on how these processes are manifested..."

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  28. Johan: Fair points. I think you are taking us towards a discussion on why in the real world there are more than one bank, and why these banks are not (all) publicly-owned utilities. (Some "skin in the game" is needed, not least when deciding on credit limits?)

    I have many reasons for choosing one communal bank as a starting point. Here are two:

    1. I think that's how it all might have started thousands of years ago (we'll never know).

    2. I think the setup is not that far from what we have when we look at the public central bank presiding over a system of commercial banks which are "too big to fail", with both explicit and implicit public (taxpayer) guarantees for most of the credits in their books. (Decisions on credit limits are harder to explain, though. I admit that.)

    I'm going to introduce a private bank fairly soon -- or that's the plan, in any case. (I don't always know where the next post, or the one after that, leads us.)

    When it comes to "money-like calculations", there will of course be those. The calculations remain the same, but the way we frame them, the language we use, differs. Although, I have to say that there is nothing wrong with "cash flow" calculations from a micro-perspective (if you see money flowing into and out of your account, that's fine -- the metaphor works). I'm arguing on macro level. In the macro picture, there is no cash or money flowing or being transferred.

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  29. Damn those typos in my text. Never make last second changes without reading through the sentence afterwards!

    Yeah, money-metaphors tend to be quite trouble-free at the micro level. Although, "money" can be quite abstract and metaphorical a notion in and of itself… which, analytically, also makes the juxtaposition between micro and macro a challenging task.

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  30. I agree, Johan.

    All: Getting back to this post, can we conclude that the credit notes can be seen as "fiat money"?

    A seller is happy to give up, sell, goods with the condition that he receives such a note, with a face value corresponding with the full price of the goods. The seller can be quite certain that someone else will give him goods in exchange for such a note, and if not, he will always have the option of taking the note to the banker and asking him to credit his account. The credit on his account allows him (if a villager) to buy any goods offered for sale at the town market (using ETRS) following the rules of record-keeping of gifts given and received.

    Unlike in usual discussions around "fiat money", the people in our economy would never find it weird that the notes are intrinsically worthless pieces of paper yet accepted in exchange for goods. Agree?

    Neither would they take the notes as a starting point and imagine that 'money', not unlike the notes, resides on their accounts and is transferred between different accounts (and, by extension, account-holders: from the buyer to the seller). Agree?

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  31. In our gift economy theory, we allow credit limits which apply to the gift receiver. I am wondering about enforcement of any limits.

    What happens if the receiver is given a gift that takes him over his limit?

    Same question but from the record keeper perspective. A proposed trade is denied because of receiver's negative credit limit. Gift is given anyway. What does the record keeper do?

    Does the giver not receive credit for the gift given?

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  32. can we conclude that the credit notes can be seen as "fiat money"?

    Yes

    "money" can be quite abstract and metaphorical a notion in and of itself

    I agree with that, too. From a tactical point of view, I find it makes sense to use a familiar term (money) and then fill it with content, whether abstract or concrete. That creates a common focal point for discussions.

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  33. Antti: Which perspective are you considering here: "Neither would they take the notes as a starting point and imagine that 'money', not unlike the notes, resides on their accounts and is transferred between different accounts (and, by extension, account-holders: from the buyer to the seller). Agree?"

    I think the villagers would disagree; the townsmen may agree. The two perspectives are quite different, a result of the different standings in the eyes of the central bank.

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  34. Roger: Forget gifts as we commonly understand them. These are solicited "gifts". If Andy gives Betty a birthday present, he won't get any public credit (through ETRS) for it -- probably Betty will "return" the gift, but that's a bilateral matter.

    Gift-giver = seller
    Gift-receiver = buyer

    I don't agree that the villagers, necessarily, wouldn't understand the system logic as explained by townsmen. Though it is possible that some of them would start to see 'money'. Remember that they don't have any 'money' from before, so they have no previous idea of it.

    Having said that, I find it encouraging that you recognize the existence of two different perspectives :-) That's my point, after all.

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  35. Oliver: What about the two other 'Agree?'s in my comment?

    Regarding the "common focal point", I would like to quote a person with a PhD in (monetary) Economics (from private correspondence):

    "With every author that one reads, one must first determine what definition of money is being used -- and indeed whether definition tends to morph within a single article -- or even paragraph...

    ...(i) this state of affairs can create confusion and (ii) economics does not handle this confusion well. So I have a lot of sympathy with your concerns."


    In these discussions, we have that common focal point, right? We talk about 'money', and I try to show that there isn't any real life 'thing', tangible or intangible, that would fit economists' descriptions of 'money' -- the content they have filled the word with (perhaps there are rare exceptions; I'm not sure).

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  36. Antti wrote: << The seller can be quite certain that someone else will give him goods in exchange for such a note, and if not, he will always have the option of taking the note to the banker and asking him to credit his account. … >>

    Well, one could argue that if the seller is uncertain that (s)he will receive goods in exchange for the notes, but certain that that will be the case in regards to account credit, then account credit appears to exhibit more of a "money-like" character than the notes themselves.

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  37. Antti, I agree with the other 2 points as well.

    Regarding the comment by your correspondent, I can sympathise with that point of view as well. Maybe it's a matter of taste and also depends on the person one is discussing with. There seems to be no right answer. But your correspondence seems to refer to himself as a monetary economist, not e.g. a member of the recording industry :-).
    Johan: I agree. Although I tend to view book entries as temporally prior in most cases, in the sense that loans are rarely paid out in cash, not last I presume because it is banks and nit the central bank that makes losns to the non bank public. But viewed from the next n bank public they must be considered equal. If bank notes won't buy you anything, neither will the credits on your account.

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    1. Pardon the typos. Should read:

      ...viewed from the non bank public...

      Delete
  38. Johan: One could say so. The notes are something new, so perhaps not all would trust them, but they trust ETRS. Remember that while the notes move from the buyer to the seller, the account credits don't. They cannot, as they are just a name we have given to the balance, a sum of cumulative entries. There is no 'velocity' or 'supply' of those credits.

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  39. Oliver: If I'll ever found a bank, I will name it Capital Records ;-)

    Theoretically notes should be as good as a positive balance on one's personal account. In practice, counterfeiting, theft, fire or accidental misplacement of the notes probably speaks for account credit? Not that the latter is 100 % safe, either.

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  40. Btw, check out this paper (draft) by Araujo et al: "On The Origin of Money".

    It seems to be very relevant?

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    History and anthropology alike emphasize that money usually replaced fairly sophisticated credit arrangements and that in the few documented instances of barter economies, barter grew out of the demise of money. Introspection suggests that an economy with credit may achieve better allocations than an economy with barter.

    In this paper we propose a fiscal theory of the origin of money as a medium of exchange. The economy is populated by private agents who use credit if the technology used to keep track of past transactions is efficient enough, but prefer money when this technology fails to record transactions. We study two different credit arrangements common in history: bilateral (nominative) credit and multilateral credit (gift-giving).

    [...]

    First, if the government is benevolent and the monitoring technology is efficient enough or not too expensive, the credit technology sustains trade in equilibrium, and is always superior to the monetary equilibrium in terms of welfare. Intuitively, credit is more efficient because it decorrelates consumption and monetary holdings, i.e. some object in scarce supply. Conversely, credit is not an equilibrium and money is preferred by both society and the ruler if the monitoring is inefficient or too expensive.

    ------------------------------------------------------------------

    I -- coming from the Nordics -- don't like their idea of a ruler who consumes with the help of taxation, though. And their 'money' doesn't sound like 'fiat money'; the latter being part of the credit system, as I have explained.

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  41. Later (p. 7) they write:

    "Our model of credit is not a model of bilateral credit. Instead, it is a model of multilateral credit (or gift-giving) in which agents are “indebted” to society as a whole."

    To use Oliver's words, it's good to notice that "gift-giving" provides us with a common focal point.

    Also Araujo et al refer to Ostroy and Kocherlakota (a line of thought I've been studying for about 18 months, I think).

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  42. On the same page, they write:

    "In the monetary economy there exists a durable indivisible good, money, which has no intrinsic value and can be produced only by the government, at zero cost. Each agent can hold at most one unit of money and money holdings are not observable by the government. Money is randomly distributed by the government to a fraction m0 ∈ [0, 1] of agents at the beginning of period 0."

    Any thoughts on this? Can we do better?

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  43. If you have time to read the paper, I think you can skip most of the mathematics (as I do). Chapter 5 is a good overview of history, drawing on Mauss, Polanyi, Graeber, etc, sources I've used, too -- there's hints of our "skilo", a unit of account without a MoE, and so on.

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  44. Antti wrote: << The notes are something new, so perhaps not all would trust them, but they trust ETRS. Remember that while the notes move from the buyer to the seller, the account credits don't. They cannot, as they are just a name we have given to the balance, a sum of cumulative entries. There is no 'velocity' or 'supply' of those credits. >>

    Antti, I don't think the "non-movement" of account credits is that essential here. We should not let 'style or form dominate over substance', as the saying goes—although there's a potential pun residing somewhere here in regards to this particular theme. It's not the paper in the note which is determining the (socially determined) money quality of the note. The note is an expression of exchange value, just like the credit balances.

    Can the villager buy anything via ETRS if s(he) doesn't have account credit (and no notes)?

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  45. Johan: Yes, paper is substance :-)

    Why I'm stressing the difference between the note and the credit balance? I'm doing it only because 'money' as conventionally understood is a valuable (whether intrinsic or not) object which is exchanged for goods. Not nothing for something, but quid pro quo; buyer hands over money, seller hands over goods. The note seems to be that kind of 'money'. But if the note has value only because it is a 'credit', just like the credit balance on a personal account in the bank ledger, then it is best understood as a physical evidence of the seller not having received anything in return for his goods (other than a record stating just that).

    I'm just repeating myself.

    What do you mean by "an expression of exchange value"? It is exactly this kind of concepts I'm trying to get rid of :-) In my posts, I have explained already quite clearly the meaning of, or substance behind, a credit balance. Then I explained that the credit note carries the same meaning. Having done that, I don't see any need to call them "expressions of exchange value".

    I don't think the villager can buy anything using ETRS if there is no sufficient credit balance on the account. What did you have in mind?

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  46. I said: "Not nothing for something, but quid pro quo; buyer hands over money, seller hands over goods."

    Remember again the link to a gift economy (without explicit recordkeeping). Whether there is a central authority keeping records of the gifts or not, the idea is the same: each individual should make sure that he gives (at least) as much as he takes. (Enforcement is easier with explicit records, but that doesn't mean that there is no enforcement without explicit records.)

    We can imagine how the individual updates mental records as he trades. Andy gives apples to someone and feels entitled (as he credited his mental account when giving apples; the account is not fully private knowledge, as his trading partners update their mental ledger where there is an account for Andy, too) to take bananas from Betty.

    In that economy, is there a quid pro quo in every trade (a gift given makes one entitled to receive a gift)? And does Andy get paid for his apples as he credits his mental account?

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  47. Antti, I mean exactly that. "Money" arises in exchange in some social circumstances. Trade an apple for a banana and you have an exchange relation as to the (relative) values of the two commodities. Bring in more commodities and they will have exchange values relative to each other. That doesn't change even if we go from barter to the kind of credit arrangement you describe in your story. The seller gets a credit note or a credit entry expressing an exchange value (it's not a random number but a particular number measured in a unit of account)… whatever the instrument/vehicle by which such exchange value is expressed in/with; be it a paper note, a credit entry in an electronic ledger or a dance move by the clerk; i.e., whatever happens to be the socially determined and accepted form expressing such exchange value.

    The villager who cannot buy anything unless (s)he has a credit balance with the ETRS will treat a credit entry booked from a sale as having exchange value, just like the item he sold, or the paper note (should the villager trust it to exhibit the same kind of value).

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  48. Johan: I think I get your point now. It's not wholly without merits :-) This is quite deep thinking, and that's fine with me.

    We can forget the credit note for now, because this is about the credit balance (only ledger record or a physical note accompanying it -- the latter is also recorded in the ledger).

    Think of the credit balance as a public recognition of its holder's right to take goods from others without incurring a debt. (There is also another right to take goods: the one which is based on common understanding that the taker of the goods will later give goods -- common understanding of a debt being incurred by taking the goods.)

    Could that kind of public recognition exist without there being any explicit record of it? Clearly it could, as it does in a gift economy without explicit recordkeeping.

    What we are debating here is whether we can view that "public recognition of a right" as having some kind of independent 'exchange value', or whether we are, even in that case, talking about the exchange value of goods. Right?

    I argue that we are talking about the exchange value of goods; that the right itself should not be said to have 'exchange value' on its own, because the right is not exchanged for goods. It is a right to receive goods, and that kind of right naturally ceases to exist once its owner receives the goods.

    The "number measured in a unit of account" refers to the nominal value, or price, of goods; goods given and goods to be received.

    I'll try to make my point more concrete:

    Take barter. You have a banana in your hand and I have an apple in mine. We agree to exchange the two goods (if we are using a common unit of account, we could agree that both are worth 1 unit "on the market").

    You give me the banana, but having received it, I hesitate to give you the apple. Let's freeze the picture here.

    Let's say you have a right (based on social norms, conventions and/or law) to receive the apple from me. Did you exchange your banana for the right, or are you exchanging your banana directly for the apple?

    I'd say that by agreeing to exchange the banana for the apple (C-C, in Marx's language), and by handing over the banana, you earned a right to receive the apple. This right will cease to exist immediately when you receive the apple. The right doesn't constitute a third 'exchange item' (no C-R-C or C-M-C). And, importantly, the right doesn't become that kind of item even if it takes a week or a year before you get the apple from me.

    When the value of the goods to be received is expressed in the abstract unit of account, without reference to any particular amount of particular goods, things become slightly more complicated. But still the 'exchange value' always refers to the goods given and goods to be received.

    If, instead of bartering, you had given me the banana on the condition that I will give you later goods of similar value (we agreed to use sticky market prices as a guide), on the further condition that you want that kind of goods when the time comes, then I don't see that the logic would have changed from two-item exchange (C-C) to three-item exchange (C-R-C). Do you?

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  49. I have to admit that you force me to think hard. That's good. Thanks!

    I'm not perfectly happy with my case. I think I know into which direction you will take this. But I'm prepared :-)

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  50. Antti: "....... , you earned a right to receive the apple. This right will cease to exist immediately when you receive the apple. The right doesn't constitute a third 'exchange item' (no C-R-C or C-M-C). And, importantly, the right doesn't become that kind of item even if it takes a week or a year before you get the apple from me. "

    The "right" you describe here seems to me to be very important. If we can describe it, we should be able to record the "right" onto paper. Once on paper, we should be able to trade the paper and "right" there-on recorded.

    I would argue that you just described my "national-gift-certificate".

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  51. Antti wrote: << What we are debating here is whether we can view that "public recognition of a right" as having some kind of independent 'exchange value', or whether we are, even in that case, talking about the exchange value of goods. Right? >>

    Well, we are always talking about exchange values. For example, "the public recognition of a right" is not, in regards to the meaning of the quantitative measure expressed in that right, independent from "the exchange values of commodities". In other words: the exchange values of commodities determine the quantitative worth of such publicly recognized right.

    In so far as we may talk about exchange value without reference to any particular commodity—say, we talk about SK10 or a credit balance of SK10—it's quite easy to conceive of a social reality where such an abstract notion as exchange value also become a recognized category in its own right. Or in Duncan Foleys words: "It is not surprising that in societies where exchange is widespread value takes on an independent form as money, as an expression of general exchangeability."

    I have to come back later with the rest, but this deserves a rapid commentary straight away.

    Antti wrote: << Let's say you have a right (based on social norms, conventions and/or law) to receive the apple from me. Did you exchange your banana for the right, or are you exchanging your banana directly for the apple?

    I'd say that by agreeing to exchange the banana for the apple (C-C, in Marx's language), and by handing over the banana, you earned a right to receive the apple. This right will cease to exist immediately when you receive the apple. The right doesn't constitute a third 'exchange item' (no C-R-C or C-M-C). And, importantly, the right doesn't become that kind of item even if it takes a week or a year before you get the apple from me. >>

    By the way you framed the scenario, it seems clear that the intention was to exchange the banana for the apple and not for something else. The right comes into play (becomes enforceable) if you don't give me the apple.

    But in a more general setting: How the right (or claim) is resolved can manifest in many different ways depending on the particular social reality/structure in question. We're outside the strict scenario already. And here there's no universal answer to that question. The original common law meaning of 'bringing someone to account' deals with such problems, by which it wasn't necessary that the claim was settled by receiving the apple but something to the same value as the apple (the 'account' itself was a process of public counting of the defendants possessions). So the right does indeed, in many real circumstances, constitute a "third exchange item" if the original item is not apprehendable. And in any case, I do not expect to receive the *same* apple intended for exchange a year later (this already exemplifies a more abstract notion of 'exchangeability' to the item and right in question). Finally, "money", could, and indeed is, as history has shown, often that "third item" due to its function as a general expression of exchange value.

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  52. Johan: Let's try to keep this as simple as possible.

    In a gift economy without explicit recordkeeping, are goods exchanged for rights and rights exchanged for goods? Or are goods exchanged for goods, so that the 'exchange' is two trades (1. goods given, 2. goods received -- or vice versa) seen together?

    The former or the latter?

    We talk about a 'right' and we talk about an 'obligation'. I think our treatment of these should be symmetrical. To say that both come into existence and that both cease to exist sounds symmetrical enough to me.

    In the example, you had a right to receive the apple from me. I had an obligation to give the apple to you. Symmetry.

    Once I give you the apple, my obligation ceases to exist. Once you receive the apple from me, your... you have exchanged your right for the apple. No symmetry.

    You said: "In so far as we may talk about exchange value without reference to any particular commodity—say, we talk about SK10 or a credit balance of SK10—it's quite easy to conceive of a social reality where such an abstract notion as exchange value also become a recognized category in its own right. Or in Duncan Foleys words: "It is not surprising that in societies where exchange is widespread value takes on an independent form as money, as an expression of general exchangeability.""

    and

    "Finally, "money", could, and indeed is, as history has shown, often that "third item" due to its function as a general expression of exchange value."


    Do you, and Duncan Foley, mean "exactly that"? I'm sorry, but this sounds as imprecise, as abstract, as most of the things written on the "essence of money". If I didn't know that you understand these things really well, I would call it nonsense.

    I cannot even tell if you are mixing the abstract unit of account with the credit balances. Before there was any credit balances in our model economy, wasn't 'skilo' "a general expression of exchange value"?

    Keep in mind that I'm not questioning the fact that people can start seeing money, and given enough time, they will be certain that money exists. You don't need to explain to me how that might happen, and defend the existence of money in some kind of "social reality".

    I'm arguing that we should question the existence of money and see if something good, something useful, could come out of it. Questioning the existence of money seems quite reasonable, not least because there is no single definition of money which economists could agree on.

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  53. Hi Antti
    Sorry, I haven't gotten around to reading the paper yet. I've read Graeber, although that was a while back when it first came out. I found him to be frustratingly vague and obscure at times, hiding behind a politically laden, pompous style. But I'm sure there is much historical truth in what he says.

    History and anthropology alike emphasize that money usually replaced fairly sophisticated credit arrangements and that in the few documented instances of barter economies, barter grew out of the demise of money. Introspection suggests that an economy with credit may achieve better allocations than an economy with barter.

    In this paper we propose a fiscal theory of the origin of money as a medium of exchange. The economy is populated by private agents who use credit if the technology used to keep track of past transactions is efficient enough, but prefer money when this technology fails to record transactions. We study two different credit arrangements common in history: bilateral (nominative) credit and multilateral credit (gift-giving).


    They seem to be using the word money in contrast to (multilateral) credit. I'd say, both are essentially the same, they just come in different forms. That form may have practical implications, but it does not alter the underlying logic.

    First, if the government is benevolent and the monitoring technology is efficient enough or not too expensive, the credit technology sustains trade in equilibrium, and is always superior to the monetary equilibrium in terms of welfare. Intuitively, credit is more efficient because it decorrelates consumption and monetary holdings, i.e. some object in scarce supply. Conversely, credit is not an equilibrium and money is preferred by both society and the ruler if the monitoring is inefficient or too expensive.

    I don't know what this means. What do they mean by equilibrium? Is that the cash in advance constraint they're imlying with 'decorrelation of consumption and monetary holdings'?


    As for that last quote: In the monetary economy there exists a durable indivisible good, money, which has no intrinsic value and can be produced only by the government, at zero cost. Each agent can hold at most one unit of money and money holdings are not observable by the government. Money is randomly distributed by the government to a fraction m0 ∈ [0, 1] of agents at the beginning of period 0."

    That's a bit of a train wreck, if you ask me. I'm arrogant enough to say I could do better :-).

    They seem to be making the assertion that it takes some central force / government to get a monetary system started. To the extent I haven't misunderstood them, and if it's in any way similar to MMT, by doing so they are confusing the idea of and the neccessity for the belief & trust in a communal accounting standard, with the need for a government to actively engage in trade.

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  54. Oliver: Not surprisingly, you and I seem to agree on everything (even on Graeber's faults) :-)

    Yes, Araujo et al. erroneously contrast 'money' with multilateral credit. When we look at the "train wreck", we can see why they must do it: their 'fiat money' is "a durable indivisible good... which has no intrinsic value and can be produced only by the government, at zero cost". As far as I know, that is more or less the official definition of 'fiat money' in all mainstreamish schools of economics. So it might be nearly impossible to radically re-define 'fiat money' and get published?

    With the aforementioned definition of 'fiat money' always come the endowments of that money: it didn't enter circulation as a consequence of a trade (as in our model), but it was given to people by God or the government ("randomly distributed"), in the beginning of time. (MMT does much, much better: They say the government spends the money into existence. That's not the only way credit balances arise, but at least it is one of the ways?)

    There are people who mock the mainstream understanding of money also on wrong grounds, but the above, I believe, is a fair assessment. What do you think?

    As far as I know, if they did define 'fiat money' as I have done in this post, they would need to radically re-write their models, perhaps even abandon them. (This is partly a guess, because I don't understand their models that well -- they seem so otherworldly to me.)

    Equilibrium... In my own words (simplifying): The economy ends up in an equilibrium when demand equals supply (price is what coordinates this). What is being produced by one is consumed by another, and all agents have balanced their budgets. More consumption usually means more welfare. So you can have an equilibrium where little gets produced, sold and bought, and consumed (low welfare). And an equilibrium where a lot gets produced and consumed (high welfare). And you can have a non-equilibrium (not everything produced gets consumed -- the goods don't find the agent who "should" get to consume them; the exchange system doesn't work as it should). (Johan might be able to explain this better? I'm no economist.)

    So, what Araujo et al. say is this:

    On certain conditions, credit allows the economy to achieve an equilibrium ("the credit technology sustains trade in equilibrium"). When this happens, welfare is higher (ie. more is produced and consumed) than it is when money is used ("always superior to the monetary equilibrium").

    When money is used, equilibrium is always achieved. If monitoring is inefficient or too expensive, use of credit doesn't lead to an equilibrium ("credit is not an equilibrium").

    (It was good that you asked, because it forces me to get more familiar with this concept. I find it quite hard to understand, because as I said, I find these models quite otherworldly. In my work I'm not after (Pareto) optimal or perfect outcomes. I don't care about any equilibrium. I just want to understand how our exchange system, and our actual economy more broadly, works.)


    What they mean with 'decorrelation of consumption and monetary holdings' must be this (and it is simple): Credit makes it possible for someone without money, right there, right then, to buy and consume. So yes, it is related to cash-in-advance.

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  55. Why the feistiness? A few posts ago you said you got the point; now it's suddenly some abstract nonsense. Wtf?

    Antti wrote: << In a gift economy without explicit recordkeeping, are goods exchanged for rights and rights exchanged for goods? Or are goods exchanged for goods, so that the 'exchange' is two trades (1. goods given, 2. goods received -- or vice versa) seen together?

    The former or the latter? >>

    It can be both. For instance, according to Graeber reciprocity can be open or closed. With open reciprocity gifting aims at keeping the relationships ongoing, thus the first option seems to be more attuned with the overall social order. With closed reciprocity the second options seems more apt—and comes closer to the kind of commodity-exchange we would experience through barter. There's no universal established practice determining the implications of "gift-exchanges". Just look at the Malinowski-Mauss debate for an example of the complexities involved; e.g., should we even talk about a gift-economy as an intra-group or individual phenomenon (Malinowski) or must we treat it as an inter-group phenomenon (Mauss)?

    I would also be vary of conflating gifting with exchanging altogether (perhaps another story altogether?), reserving the notion of exchange in the economic sense to that mostly associated with buying and selling commodities (or barter-like exchange of commodities; where objects of trade are known a priori).

    The reason this whole issue about 'expression of exchange value' arose was because the story evolved into a discussion about a trade relationship between distinct communities. I thought that the villagers weren't part of the community using the ETRS. Thus it seemed quite natural to discuss how such trade relationship could play out and what implications that could have. I would say it's that kind of inter-group interaction which gives us the opportunity to re-evaluate the assumptions previously brought out.

    The villager—who isn't necessary part of the normative structure/culture embedded in the "other" community—could possibly evaluate the credit notes or credit balances he would receive via sales differently, should he accept such arrangement in the first place, especially since it became clear the villager must first have credit balances before buying anything via ETRS. That alone could be significant as to the meaning of what those credit balances represent. Hence at first inspection, from the villager's point of view, credit balances with the ETRS appears no different from what we would call "money" in that they exhibit the same kind of exchange value as the item sold … Regardless of the constitution in which exchange value is expressed in, and where considerations of movement vs. non-movement of the electronic form seems irrelevant.

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  56. Who among us has been given home grown produce? I have been so lucky many times. Friends (not necessarily close friends) have home gardens that produce more than the grower can consume. Rather than seeing the produce go to waste, the grower simply gives it away.

    Do I consume everything given to me? No, I sometimes see things spoil first. It is not unusual that I, like the grower, do not like the gift well enough to consume it.

    I think we can take economic lessons from this gifting sequence. The first lesson is that something must be produced before it can be traded or given away.

    The second lesson is that gifting is an easier path than trading. This is an important lesson. Gifting simply requires a compliant recipient who will take the goods. Trading requires finding a second entity that wants the product you do not want AND who has a product that you DO want.

    Now we can bring credit into the discussion. (Gifting does not play a role in credit because gifting describes a method of transferring ownership of unwanted goods.) We can consider "credit" as a promise to perform in a prescribed future fashion.

    Our prolific home gardener can provide a model and example. Rather than gifting away unwanted carrots, he may be interested in obtaining sweet corn (for corn-on-the-cob treats) from other home gardeners. Carrots harvest long after sweet corn passes prime condition. The carrot producer may seek credit from the sweet corn producer, promising to trade carrots in the future for sweet corn received at present.

    Such a promise could be recorded by writing-on-paper. Once on paper, the writing-on-paper could be traded to other entities. We could recognize that we have just described the creation of money. The only thing left to explain is how writing-on-paper can be universally accepted as a uniform trade vehicle.

    Does this make sense? :-)

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  57. Johan said: "Why the feistiness? A few posts ago you said you got the point; now it's suddenly some abstract nonsense. Wtf?"

    I apologize. I could have been more constructive.

    To use "expression of general exchangeability" and "a general expression of exchange value" more or less interchangeably sounds just way too vague to me. Yes, the former was a quote, but it was a quote fully endorsed by you.

    But perhaps I'm mistaken. Perhaps they weren't used interchangeably. If not, then I'd like to hear what is meant by

    money being "an expression of general exchangeability", and by

    money's function "as a general expression of exchange value"?

    In our model economy, should the central-banker explain to a villager that a credit balance on his account is an expression of general exchangeability -- or functions as a general expression of exchange value -- how much wiser would that leave the villager?

    I'll get back to the rest of your comment later. Again, I respect you and didn't mean to sound as disrespectful as I probably did.

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  58. Roger: Try to find out what Araujo et al. mean when they write "it is a model of multilateral credit (or gift-giving) in which agents are “indebted” to society as a whole".

    As I said earlier, you are talking about gifts in the conventional (to our culture) meaning of the word. Economists, like so often, use the word in another sense -- in this context. This is because "multilateral credit" looks like, or is, a system which anthropologists have called a "gift economy" (which is not too clear a concept, as Johan says, but gives an idea). This "gift economy" is actually a "give-and-take economy", so you give gifts and take gifts, and people try to make sure they give as much as they take. That makes those impure gifts.

    So, there is bilateral credit (what you describe above) and there is multilateral credit. And the latter looks like gift-giving where there is an expectation that if you give, you will receive later, but not necessarily from the one you gave to, but from someone.

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  59. Antti, the Foley part is about the evolution and extent of the market. To the degree that commodities are produced with the aim of being exchanged, "money" becomes an ever more general medium by which exchangeability is expressed. Perhaps such discussion could take use of a notion pertaining to what we call medium of exchange—at the MOE-UOA axis? So it's a discussion about the generality of exchange as a social phenomenon.

    The latter part was in a context of how rights/claims are settled, i.e., inherently a price discussion since the conduit for settlement tends to gravitate towards the "money-form". That could not happen without social generality in how we deal with a multitude of exchange values. Perhaps this could, roughly, be thought of as a discussion at the UOA-SOV axis (SOV = store of value)?

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  60. Johan: 'Exchange value' of what? I still have trouble understanding why the pure, abstract UoA, skilo or dollar, which is used to express the prices of goods (and thus their relative values), wouldn't match the description you and Foley are offering.

    As far as I know, most economists think that the same 'thing', dollar, acts both as the UoA and as the MoE. They think that a price of 100 means that the good costs 100 'credits', just like a good, say an apple, might cost you 1 banana.

    To me, as I've explained in my posts, the UoA and the MoE are, conceptionally, two entirely separate things.

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  61. Antti, it's useful to differentiate between use value and exchange value of commodities. The generalized *measure* of exchange value encompassing the relative valuations of a multitude of commodities is the unit of account. Exchange value can be 'expressed' in many different forms like paper notes, coins, credit entries on a ledger or whatever *medium* happens to be socially recognized as such (…even dog teeth).

    In a theoretical discussion like ours: Instead of distinguishing between all the different kinds of forms by which exchange value can be expressed, I think we can abstract away from the particularities of that multitude, and simply talk about "money" as a kind of "general expression of exchange value".

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  62. Johan, you're talking about the value(s) of commodities. The whole point is that money is not a commodity! Just because a meter of string has value, the stick we measure the meter with does not suddenly become a proxy for the string. The meter is a standard, a standard that can be applied to string but also to all sorts of other things. Importantly, it is not a thing in and of itself, economically speaking. Commodities can be measured in meters, kilos or bushels. The most general measure (aka money) helps us convert a meter of string into grams of salt or m3 of water. It helps us assess the relative values of different commodities that would otherwise not be comparable.

    Using the terms 'expression of value' or 'medium of exchange' in this context, while actually referring to the (relative) values of the commodities themselves is confusing and should be avoided, imo.

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  63. Johan: There's an apple with a price tag saying "2 skilos". If someone called the price tag, with a price written on it, an expression of exchange value, I wouldn't protest. You?

    The 'skilo' is fully abstract (think of my first post). There are no 'skilos' in existence, not as notes or as account balances. When positive account balances and notes come to exist through the adoption of the monetary system, those won't be called 'skilos'. No one can ever be in possession of skilos. You can only have a credit, or a debt, nominally worth so and so many skilos.

    Are we on the same page?

    Now, you can call those credits whatever you like, describe their purpose or meaning in whatever way you like. The question is: Does the name or description make sense to others? "Others" here cannot be a small circle of people who have been reading the same texts, but should at least include, in my opinion, the majority of economists. If it doesn't, then we can conclude -- as most economists I know would admit -- that the essence of 'money' is an unsolved problem in economics.

    Think of Andy, with a +SK50 balance. Would he become wiser if we told him that the balance is "a general expression of exchange value"? The more I think of it, the more I see that as a(n unnecessarily complicated) description of a price tag.

    The word 'measure', as you know, is problematic when we talk about the UoA. Skilo price alone doesn't tell us anything about the value of the good. Only comparison to the price of other goods can reveal us something about the value of this particular good. I believe there is also a reason why economists don't generally talk about 'use values' and 'exchange values' anymore (Marx did). I don't want to sound too "mainstream", but it is clear to me that the concept of 'value' is problematic (that is, it is hard to get your head around it when you start thinking of it, and simplicity of expression is not there when you start to talk about it).

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  64. Antti:

    I am afraid that you are trying to build a framework out of fog. You have the Skilo which is a measurement with no exchange value and, thus, an existence without a reference point. You cannot build a solid framework without reference points.

    You protested when I suggested that we use labor as a reference point to value the Skilo. You protested again when I suggested that money be treated as if it were a gift certificate, there-by giving money a reference point. It's not that you don't the understand the concepts; rather, you do not see the need for reference points and seem to have no desire to find points of interconnection.

    Without reference points, our reasoning can become circular, ultimately to become self contradicting. IMHO, I see this in your last comment where you write "There are no 'skilos' in existence." and later, in the same paragraph, write "You can only have a credit, or a debt, nominally worth so and so many skilos." How can you measure without a measure in existence?

    I think you are correct when you end your comment talking about UoA. Measurement is problematic. To me, measurement becomes a goal. I see measurement as a necessary precondition to sensible economic theory. Rather than casting measurement aside by trying to justify a lack of need for measurement, my goal is to find sensible reference points and sensible measurement standards.

    I fear we have conflicting goals. :-(

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  65. Antti wrote: << There's an apple with a price tag saying "2 skilos". If someone called the price tag, with a price written on it, an expression of exchange value, I wouldn't protest. You? >>

    See further down for my explanation. But a sneak peek phrased in wiki-terms for convenience: "… the exchange value of a commodity is for Marx not identical to its price, but represents rather what (quantity of) other commodities it will exchange for, if traded."

    Antti wrote: << The 'skilo' is fully abstract (think of my first post). There are no 'skilos' in existence, not as notes or as account balances. When positive account balances and notes come to exist through the adoption of the monetary system, those won't be called 'skilos'. No one can ever be in possession of skilos. You can only have a credit, or a debt, nominally worth so and so many skilos.

    Are we on the same page? >>

    Yes, that's why I wrote the unit of account being a *measure*... as in 'a reference standard'. I.e., I described what the UOA is or the function it has. Although as a measure skilo does exist.

    Antti wrote: << Now, you can call those credits whatever you like, describe their purpose or meaning in whatever way you like. The question is: Does the name or description make sense to others? "Others" here cannot be a small circle of people who have been reading the same texts, but should at least include, in my opinion, the majority of economists. If it doesn't, then we can conclude -- as most economists I know would admit -- that the essence of 'money' is an unsolved problem in economics.

    Think of Andy, with a +SK50 balance. Would he become wiser if we told him that the balance is "a general expression of exchange value"? The more I think of it, the more I see that as a(n unnecessarily complicated) description of a price tag. >>

    It's not a description of a price tag and it's not meant for Andy but for you and me and any other here discussing the topic; to help us understand and explain the theoretical foundations we are looking at.

    Let's go back to the villager because it all started there. If the villager who intends to trade with someone from the other group is told that if (s)he gives away a commodity (s)he will be given a note or credit entry signifying an acknowledgment that (s)he has given away an item without having received anything in return. Would the villager agree to give away the commodity in such circumstance? Obviously not. Would anyone? Something is missing, and you already gave the answer to what is missing, and that is exactly what I would describe as expression of "exchange value". What you said was:

    ["The seller can be quite certain that someone else will give him goods in exchange for such a note, and if not, he will always have the option of taking the note to the banker and asking him to credit his account. The credit on his account allows him (if a villager) to buy any goods offered for sale at the town market (using ETRS) following the rules of record-keeping of gifts given and received."]

    In other words, you are already implicitly describing social recognition of exchange value and the socially recognized media in which that kind of value is expressed (credit note and/or credit entry). That is also the necessary condition for what we might call "money"—perhaps the "essence" you are trying to find? Whether it's also a sufficient condition is, I guess, still open for debate.

    When you asked me: "Exchange value of what?"…the answer is not "of what" but "as such". As a social property.

    Obviously I think value-categories are useful in understanding economics. That's why I even brought them up here, especially at that particular conjunction of the story. And you know my opinion of the wreckage we call mainstream economics… ; )

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  66. Oliver, it seems I have not made myself properly understood. By reading my answer to Antti some of the points you raised might be answered there.

    Yes, money may not be a commodity, which is the reason why it must express exchange value—otherwise money (not a commodity) wouldn't exchange for commodities. Understand "exchange value" as a socially recognized category as such.

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  67. OK, I think I follow you now. I personally would put it this way: it is the belief that money, i.e. the records of our past gifts, can be kept and traded in for commodities in future that makes it / them valuable to us now. Without that belief they would just be records without meaning.

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  68. Yes, and my main argument is that there is no 'money', or credit balance, which is "exchanged for", or "traded in for", commodities/goods. An individual gets goods and loses a credit balance. From an individual's perspective, one might get away with using the aforementioned expressions, but when we look at the transactions from macro perspective, 'money' or a credit balance doesn't constitute an item which is exchanged (or transferred) between two parties. A physical note/coin does, which makes it special. But when notes/coins are described in terms of the recordkeeping, their physical existence becomes irrelevant (in this context); a common mistake has been to describe the recordkeeping in terms of the physical notes/coins.

    In other words: goods don't buy money and money doesn't buy goods.

    I'll get back in more length next week (very busy right now).

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  69. One more thing:

    My theory is the one the townsmen understand, the one with no money in it. If the villagers write a theory which includes money, then they will arrive at the prevailing understanding of the monetary system. We will have two, or more, competing theories. And that's my whole point: I'm offering a theory which challenges the existence of money.

    It's not that the villagers are using a different system with different logic. It's the same system, the same logic.

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  70. Ok, now I'm taking time from sleeping :-)

    Johan said: " If the villager who intends to trade with someone from the other group is told that if (s)he gives away a commodity (s)he will be given a note or credit entry signifying an acknowledgment that (s)he has given away an item without having received anything in return. Would the villager agree to give away the commodity in such circumstance? Obviously not."

    I don't get this. The villager will give away the commodity, because the townsmen have explained to him that this gift will entitle him to a counter-gift later on. At the town market, he will first give away, say, copper, and this gift of his is recorded. Then he will take some apples and other goods, and these gifts he receives are again recorded. All goods are priced in skilos, the abstract unit of account.

    Again, I described the NOTES in a way which more or less matches the usual description of 'fiat money'. But I have explained how these notes serve as a mechanical device for decentralizing the recordkeeping related to gifts, and can be understood in terms of that recordkeeping.

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  71. Oliver, sure. That belief is not much different from the producer's belief that what he has produced (the commodity) has value in relation to other producer's commodities. It's in this context where a seemingly abstract notion like "money as an expression of general exchangeabilty" meets the concrete world of exchange: so that we can talk about "exchange-value" without referens to any particular commodity or any other particular value-quality of a commodity.

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  72. Antti, regarding your last two posts since they concern essentially the same issue.

    The two logics appear different: it shows at the intersection between how the townsmen can conduct business with the villagers and vice versa. So, the townsmen can get a commodity from a villager without first giving away commodities. The villagers cannot get commodities from the town market without first having given away commodities. That asymmetry is overcome by "[…the townsmen having explained…]", i.e., buy the social recognition of exchange-value being expressed in the medium of a credit note or a credit entry. Hence, in this respect it does not matter whether a villager has a credit note or a credit balance because a villager cannot purchase anything without having title to either one. And to the extent a villager has title to one or the other; it does not matter as to which one.

    However, depending on how the ETRS-rules are set, there might still be a difference in the following extended sense: Villager A carrying a credit note may redeem a pre-existing debt to villager B via the former turning over the note to the latter. That may not be possible directly via ETRS, but perhaps only indirectly. But inasmuch as it would be possible, hypothetically speaking, then credit notes and credit balances would again be identical as to aforementioned function. And that would, of course, be a fully-fledged "money-transaction".

    Hope this helps to clarify the context of my criticism?

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  73. I am coming to admire Antti's gift theory in an unexpected way. It, combined with all the comments, unites to give insight into the "works until it doesn't work" monetary phenomenon.

    Let me see if I can explain. :-)

    The gift theory contrasts with monetary theory principally over the issue of physical existence of money. Gift theory denies a need for money.

    Antti offers two economic communities: townsmen using the gift logic, villagers using either barter or money (should money exist). Villagers can not trade with townsmen unless villagers present goods first (giving them the right to 'credits').

    Townsmen explain to villagers that villagers have complete freedom to trade providing that they first obtain a credit, which should be no barrier because immediately upon receiving credit, villagers will have the right to trade up to the credit limit. (A simple case of the "who goes first" dilemma.)

    Now we get close to the heart of the union of concepts.

    Townsmen use Skilos as the evaluation unit (UoA). Villagers see the Skilo as a exchange vehicle (MoE and probably a SoV (Storage of Value)). Townsmen are thinking Skilo does not exist, it only measures value. Villagers are thinking Skilo DOES EXIST; Skilo possession is necessary before trade occurs.

    And now we see the dilemma: village copper is traded for apples (copper is first given, then (immediately) apples are received.) The
    "who goes first" problem should not exist because this copper-apples trade opportunity is immediate. But what about the value determination?

    We need to examine the relative values of copper and apples more carefully. Presumably, there was barter trade preceding the gift/money introduction. Any historic trade relationship could easily be relabeled into a monetary intermediate (whether physical or abstract). Now we have a question: how would a fixed past relationship be flexibly molded into a dynamic gift/monetary relationship?

    Where would the dynamics originate? Apple crops are seasonally variable, copper mines wax and wane, money supply varies, gift total credits vary.

    We have all the ingredients for a "works until it does't work" situation. It should be possible for villagers to trade copper for apples, probably having a few credits left over for future apples. It should be possible for villagers to continue accumulating credits for successive trading events. There should never be a problem---until there is a problem.

    There can come a time (event(?)) that causes villagers to claim that townsmen are just trading credits for valuable goods. We may have arrived at the "doesn't work" situation. We may have arrived at the situation where the copper-apple Skilo valuation no longer has a logically defendable base.

    We may have a model of the "works until it doesn't work" monetary phenomenon.

    I don't see that the model offers any solutions. Perhaps, however, with a model in hand, we can find a mechanism to revalue the relationship between copper, apples, and credit/money. :-)

    Thanks to Antti, Johan, and Oliver for offering model-expanding concepts and descriptions. :-)

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  74. Johan said (to Oliver): "so that we can talk about "exchange-value" without referens to any particular commodity or any other particular value-quality of a commodity."

    I'm probably missing something, but I still can't see that you talk about the credits, not the UoA.

    Look at my very first post. Didn't 'skilo' (not 's-kilo', salt-kilo) allow us to talk about exchange value without reference to any commodity? Take a bilateral debt of SK100, before the adoption of the recordkeeping system. The debtor will deliver some yet undefined commodity to the creditor.

    Doesn't that SK100 refer to an exchange value? Whatever you mean by it, including the "general expression", it must be already present when Timmy buys apples priced at SK100 from Andy and promises to deliver later another commodity (with an established market price; or even a listed "fair price", depending on the market system) priced at SK100 -- pending Andy's approval of the type, not price, of the commodity.

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  75. Johan: Let's stay out of the "fully-fledged money transactions" for now :-) We'll get there. (A sneak peek: The system is flexible, and that suits people well.)

    A villager cannot purchase anything without having first sold something. That's the rule (a usual one when dealing with strangers; either barter or asymmetrical credit). The rule is not about a title to a credit balance. The credit balance is just part of the recordkeeping, the purpose of which is to track people's sales and purchases.

    Johan said: "That asymmetry is overcome by "[…the townsmen having explained…]", i.e., by the social recognition of exchange-value being expressed in the medium of a credit note or a credit entry."

    What do you mean by this? The logic of the system is the same for both townsmen and the villagers: recordkeeping of gifts given and taken. Villagers have an additional restriction: Always give first, never be in debt.

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  76. Antti, villagers (as a group) cannot purchase anything without first having sold something. It's also true that villagers (both as a group and as individuals) cannot buy without a credit note or a credit entry. An individual villager who comes into town carrying a credit note sure seems able to buy—whatever way the note happened to come into the individual villager's possession. Not sure about the credit entries since that aspect might have further restrictions. From a villager's point of view then: it's not even a credit 'balance' in the proper sense since the rules in place makes the notion indistinguishable from a simple credit 'entry'. Only townsmen appear to have balances proper.

    The recordkeeping seems to convey different meanings depending on group membership, just like Roger eloquently also alluded to. The role of the recordkeeping is therefore not only that of keeping track of "people's sales and purchases"; it's also the means by which trade is comparatively restricted; and it's also a necessary (additional) precondition enabling any villager to receive after having "given first", and which might become crystalized should the villager for some reason loose the note or the credit entry (due to a glitch or whatever). … The point being this: Title to that "expression of exchange-value" is still required even though the original purpose was to just record trades among townsmen and even though a sale has been conducted prior to buying. Thus it seems to have morphed into something else/more in the inter-group context. From the townsmen's point of view, trading with fellow townsmen, it still looks like C-C. But from the villagers point of view it sure looks like C-?-C. And the question is, of course, whether [?] can be interpreted as [M]?

    The logic cannot be the same if one group is restricted in exchange in ways the other is not. That's, per definition an asymmetry. The rule might be a usual one when dealing with strangers. But then again, aren't townsmen also strangers in the eyes of the villagers? Kind of like the bartering lesson learned should one group show up and bring out the best artworks they have while the other brings out the best weapons they have…

    Descriptions of exchange seem to vary depending on whether we look at exchange as an antagonistic process or the opposite. A concrete economy always encapsulates both. I keep wondering if [M] is that necessary generalization by which we can consolidate both extremes into a single view?

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  77. Johan said: "The logic cannot be the same if one group is restricted in exchange in ways the other is not."

    All of the people using the system have a credit limit. For townsmen the limit hasn't yet been made explicit. To simplify our discussion, let's assume a limit of SK2,000, set by Town Council, on townsmen's individual accounts. This limit can be extended through an approval by the Investment Committee (set up by the Town Council) of a "credit limit extension application".

    Everyone is restricted in exchange in some way. How should we describe these restrictions?

    Take a townsman with a SK1,900 negative balance and a credit limit extension application disapproved by the Investment Committee.

    Compare him to a villager with a SK100 positive balance.

    Both are facing essentially the same restriction in their trading: using ETRS, they can buy a good worth SK100 but not a good worth SK150. One has a negative balance, the other a positive balance. If we are looking for a generalization, then I don't see how bringing in M would help us.

    We have already discussed the rercordkeeper/gatekeeper distinction in greath length. The latter is about enforcement of the overall budget balance. If this enforcement in some cases means that someone is not allowed a negative balance at all, then be it.

    To me, a generalization of the (gift) trade restrictions, expressed in terms of the recordkeeping -- the recordkeeping system, and the two-way communication between a bank and the trading parties, being the best way to enforce these restrictions --, would look something like this:

    A debit entry on an account will be rejected if the ensuing account balance is below a pre-set balance limit, a limit which can vary from an account to another. (This rejection in turn leads to no credit entry on the seller's account and thus no confirmation, through ETRS, is sent to the seller about the trade having been recorded. The record of the trade is what matters to the seller; not any receipt of M or 'expression of exchange value', which the seller might never receive even if we used those concepts.)

    This rule covers all cases; also the special case of a balance limit set at zero. There's no need to create another rule and bring in M or "expression of exchange value". The latter would apply only to a subset of accounts where there is strict limit at zero. (Most of our real-life bank accounts don't have this limit -- you and I can run a smallish negative balance on our checking accounts even without prior agreement with the bank. This possibility has been used, for instance, in the US by some frauds who have opened multiple accounts and have then "overdrawn" them. The villagers aren't allowed even this "loophole".)

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  78. (Continuation from the previous comment.)

    Johan said: "villagers (as a group) cannot purchase anything without first having sold something. It's also true that villagers (both as a group and as individuals) cannot buy without a credit note or a credit entry."

    Yes. The latter is true. I admit that it is even more true than the former (about selling goods first; for instance, Andy could give away credit notes to a villager, or, in the absence of a trade, cause a credit entry on a villager's account). But it is not more true than my general rule above, and that's why I don't see a need to bring in M.

    As I said, we will eventually get to the "money transactions" which can be interpreted in a way where there is no place for M. The interpretation probably sounds unnecessarily complicated at first, but this, I argue, is due to us having so deeply adopted the interpretation where M plays a central role. If you feel that it is easier to describe the phenomena using M, then you have my full sympathies; what I went through in 2014-2015 when re-interpreting the phenomena could as times be called "brain torture" :-) After all, looking at the financial system (with no direct reference to trade in goods) and not seeing M in it -- after having seen M in it for 30 years or more -- is pretty hard.

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  79. Johan said: "From a villager's point of view then: it's [the note] not even a credit 'balance' in the proper sense since the rules in place makes the notion indistinguishable from a simple credit 'entry'. Only townsmen appear to have balances proper."

    This rings true to me. I've noticed that a credit note, physical currency, seems to be, or serve the purpose of, both an entry and a balance:

    1. It's an entry, or actually two entries, when it changes hands: a debit on its former holder's account and a credit on its new holder's account.

    2. It's a positive balance seen from its holder's perspective, although when in possession of someone with a negative balance on personal account, it should be mentally netted against it.

    So I tend to agree with you: it's more related to entries than to a balance. It's a way to keep track of trades done without link to ETRS. If ETRS was used, we would only talk about entries; balances have nothing do with individual trades, but with the overall budget position. The bank has lost view of individual balances, but once someone returns a credit note the bank will be able to record the net effect ("net entry") of trades done using notes.

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  80. Johan said: "From the townsmen's point of view, trading with fellow townsmen, it still looks like C-C. But from the villagers point of view it sure looks like C-?-C."

    Yes. It might look like C-?-C. But then again, I can make it look like C-C :-)

    Let 'A' denote Andy and 'V' a villager. They meet at the town market where A is selling apples and V copper. A agrees to buy copper worth SK200 from V. A's account is debited with SK200, V's account credited with SK200. Having walked around the market, surveying the goods for sale, V comes back to A and agrees to buy apples worth SK200 from him. Both accounts are updated. These are the only trades for both A and V that day.

    Did not A exchange apples for copper at the market that day? Yes. C-C for a townsman, as you said above.

    Did not V exchange copper for apples? If not C-C, then what would the '?' be in C-?-C, and why should we focus on it? Both trades were recorded following the same logic.

    If A happened to have a positive balance all along, we could say that from his perspective the first trade looked like M-C and the second trade like C-M, just like we can say that V might have seen the trades as C-M-C (only one M, as it looks like it was "the same M" he later gave up).

    Alternatively, we can say that A received one C (this trade was recorded) and later gave up another C (this trade was recorded), and vice versa for V. All we have is C-C exchanges and recordkeeping related to these exchanges. No C-M or M-C exchanges.


    (If your comment triggers an avalanche of comments from me, then you must be hitting the right spots!)

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  81. Antti:

    Don't forget that (at least Roger thinks) record keeping is a physical event.

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  82. Roger: I haven't forgotten that. This is not about events, but about some 'items' having, or needing, an existence so that they could be exchanged for something else.

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  83. Jeez Antti! Slow down... ;-)

    First things first. Know this: I'm actually sympathetic to your model and approach. The reason my measuring stick might look like a sledgehammer is because I want to measure the thickness of the walls. Crude but effective as to unexpected consequences.

    So, Antti wrote: << Did not A exchange apples for copper at the market that day? Yes. C-C for a townsman, as you said above.

    Did not V exchange copper for apples? If not C-C, then what would the '?' be in C-?-C, and why should we focus on it? Both trades were recorded following the same logic. >>

    I think it was good old Marx that said something like: "…the contradictions latent in the exchange of commodities are both exposed and resolved by circulation." However, I'm no Marx specialist and I had a different macro-perspective in mind, although more along the lines of non-circulation. I also had some figures and examples in mind when I wrote the previous post (yesterday, but published today). Hope it's ok to use them even though you had your own figures already laid out—saves me time today as I'm urging for some sleep.

    [?] Is that which prevents or allows a trade to occur even though from a macro perspective the figures could be such that that they would allow a trade to occur, i.e., commodities have already been given away. Townsman A has an item for sale at SK3. Villagers V1 and V2 have already sold an item each to townsman B for SK1 and SK2 respectively. So from a macro perspective it should be possible for the villagers in cohort to buy the item from townsman A. That's not however the case for them as individuals. The item in question being a diaper also makes sharing hopelessly unattractive so let's not take that as an option. No trade occurs. That trade could, however, have occurred with another division of [?] …namely by combining [?] of villager V1 with [?] of villager V2 to either one's benefit. By implication then, the other one have given away something more than a commodity. Why is that not a title to [?] given away or transferred?

    The contradiction is as follows: If we allow such combination and hence the trade to proceed, we may perhaps conclude that, in the end, it was just a matter of C-C. But if so, we have also allowed independency to "exchange-values" as a social apparition nevertheless how transient their occurrence. All that will still be noticed because without that happening the trade would not have transpired. From a physical point of view Ca + Cb = C in the abstract (a & b being the concrete commodities the respective villagers gave away; C being the abstract of them combined). If that can be conceived, we can also combine the "exchange-values" concomitantly. So: C-??-C seems equally true a description of the exchange process in that case. And isn't this problem what we would treat as a cash-in-advanced constraint? (Pun intended!) So it seems to me C-M-C also stands as a valid 'object of explanation' if we are to consider the overall picture of why the trade after the initial "giveaways" occurred or didn't. In this case C-C being the result of C-M-C since the absence of [M] in C-M-C would reduce to C-0 rather than C-C.

    In short: Even though we might say [?] ≠ [M], we could still claim [? + ?] = [M].

    … Which is why we might not want to allow the combination to happen in the first place, hence keeping the "logic" of C-C from being "disturbed"?

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  84. Johan: Thanks! Ill think about this before I answer. When it comes to the 'combination', we will allow that to happen, because otherwise our theory doesn't fit reality. But we will describe it as something else than two credit balances put together.

    This is not necessarily about valid vs. invalid, but about finding a new and valid way to describe phenomena. At this point, at least.

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  85. Johan said: "Ca + Cb = C in the abstract (a & b being the concrete commodities the respective villagers gave away; C being the abstract of them combined)"

    I think I know what you mean. But to add 'concrete commodities' and arrive at something abstract is problematic, isn't it?

    It's not the commodities themselves we are talking about, but the price of them. V1 might have got an outrageously high price accepted by townsman B for the item he sold. This makes the notion of 'exchange value' problematic, as if we were adding two commodities or certain quality shared by two commodities.

    I would say that we add the price of a and the price of b (price is abstract yet it refers to a commodity?) and arrive at a new price (abstract). Price of what? We do not know, yet.

    If we only talk about concrete stuff, then it clearly is C-C. It is the '-' or '—' (I allow it to be a little longer -- a dash -- to highlight its significance) which is of interest to us. Behind this little sign lies a whole theory for us to discover: the Theory of Exchange. To replace the dash with '-M-' gives the impression that the theory is about C's and M's, when it really is about the dash.

    Walras-Arrow-Debreu, what some call the Theory of Value, is about C's only. One C becomes another C, implicitly C—C, but the focus is on the C's and very little if anything is said about the dash between them.

    Then come people like Hahn, and especially the likes of Clower, and note that 'money' is missing. The say that C—C is not realistic, because (micro) experience tells us that it nearly always is C-M-C. As a consequence, focus turns from one exchange, C—C, to two exchanges: C—M and M—C. Again the dash is more or less ignored! Yet, it is the dash in the original C—C we should focus on. It's important. It is not 'neutral'.

    I will save my explanation of [?+?] for later, to keep this focused. In my explanation I will take your example with V1 and V2 as a starting point. It's a good one.

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  86. OK, you said that a and b are the concrete commodities. So perhaps you weren't adding commodities. It was your choice of the letter C in 'Ca' and 'Cb' which made me think you are talking about commodities only. C might be a misleading letter to use if you mean something like the 'exchange value'?

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  87. Above I said: "price is abstract yet it refers to a commodity?"

    This needs clarification. Instead of "refers to", perhaps we could say that talking about a price only makes sense if it is a price of a good (incl. services). From this perspective, a 'credit balance' doesn't have a price, but it refers to prices of goods. The number alone, say SK2.00, doesn't alone have any meaning. For it to have a meaning, there must be some goods priced in SK.

    If the balance, or M, or ?, would be exchanged for a certain good, then it would imply that the price of the good and the price of the balance match. Wouldn't it?

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  88. This has become very abstract. To channel Quantum Economics for a moment, they often start with the Income = Output identity. Their to answer your question (Johan) of whether an act of lending money proves that money exists in the abstract is that an act of lending money income is tantamount to lending one's output. Their basic model is constructed slightly differently with workers (employees) who receive income for the output which they lend to firms until they buy it back on the goods market. Instead of a C M C cycle it's a (+-C) = (+-Y) cycle, which is resolved when the goods market clears. The case of money with no concomitant output is considered 'empty money', a financial commitment with no corresponding output. They do not go as far as Antti to claim that money does not exist. Personally I feel it's sufficient to acknowledge that inter personal claims cannot exist in the positive alone. And that is exactly what C - M - C alludes to, making it a problematic starting point for any macro theory. Any M or Y must always exist as a -M or -Y somewhere. It is a relative measure. Whether we're measuring Cs relative to one another or relative something else is then a second order question. I assume Antti won't be satisfied with that answer, it's somewhere in between. But I share his concern that any macro theory that relies on an M as a factor is at best misleading.

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  89. Oliver said: "This has become very abstract."

    I was just about to write the same! We need a new post, soon.

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  90. Yeah, the C could give ambiguous signals. I did not mean that by combining [a] and [b] we get a third commodity with completely new physical properties, hence different use-value altogether; say, by combining the physical properties of [a] and [b] we get a brand new commodity with the physical properties of an explosive or a smoothie… which is however possible and as such, as a new commodity, could exhibit higher "exchange-value" than [a] and [b] combined if they were to be exchanged separately. That's not what I meant. This problem, of course, comes later whence production and profits intrudes into view.

    What I mean was that if we can conceive of [a] and [b] as a bundle, we need not concern us with the concrete properties of the bundle but can simply treat the bundle as a commodity in the abstract (C). Thus, we only need to concern us with the "exchange-values" of the two commodities and that's generally just a matter of addition in the case of a bundle. The physical property of the bundle becomes irrelevant as the "exchange-value" of the bundle becomes relevant.

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  91. All will remember that I have been worried about the price of the bundle (what is the "exchange-value" of the bundle).

    One possible answer is that we add the idea of "competition", where "competition" becomes the price generator.

    This requires at least two suppliers that produce the same product, each completely independent but each seeking to sell to the same single consumer. Presumably, the customer can work back-and-forth between the two producers to find the best price (fair price, not-monopoly price). Then, when an exchange is finally made, this agreed-upon price would be reported to the record keeper to become the permanent record.

    This conversation has become very abstract but (I think) in a very healthy way. :-)

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  92. Johan, it seems as though you're trying to deduce the subjective value of a commodity, not by resorting to a subjective theory of value, as is usually done, but by adding an abstract layer to the object itself. You're not going full on labour theory of value but it seems you're not prepared let go of your Marx yet.

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  93. Oliver, before I can let go of Marx I probably should get him on board first. The distinction between use-value and exchange-value stems from before Marx—Ricardo already played with it; so it's the classical economists whispering in the background for sure.

    I don't think it's so much about adding an abstraction layer as it is about emphasizing one over the other. We are mired in abstractions already when dealing with social phenomena. But when it comes to social exchange, particularly exchange of commodities, then exchange-value seems to be the relevant form of value we need to deal with. We can't get rid of the notion of value anyhow, lest we strip most of the meaning from the theory.

    Although, I do think a subjective theory of value is quite impotent once we're dealing with full scale production itself, especially in terms of 'cost-of-production' and that part of the theory.

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  94. If we allow customer comparison of supplier to supplier, what reference would be used? Antti would use the Skilo as an abstract unit but in reality, a second reference is also used. Thus, we could have a customer shuttling-between-two-suppliers arguing that a comparative small apple was worth 1/2 Skilo while a big apple might be worth 1 Skilo.

    With competition assumed, we have a single consumer using at least two reference items (the measuring scale and apple size) in a comparison between two suppliers.

    Whichever apple the customer picked, only the price-times-units would be recorded.

    Would it make any difference (in price determination) if the measuring scale used (the Skilo) was abstract, a real commodity (like gold), or physically existed (like currency)? I don't think so. The only important thing is that everyone in the economic community use the same reference measuring scale.

    Finally, when debt limits are applied, we need to notice that the limit is measured in price-times-units.

    Price-times-units as a limit would be translatable into number of apples or any other tradable item(s). Again, the price part of the calculation could be set by competition for the item under consideration.

    Using the background just provided, we could make the following algebra translations:

    barter C-C

    semi-barter C-M-C or C-(?+?)-C
    semi-barter 1/2 trade (+-C) = (+-Y)

    (semi-barter trade uses an intermediate to store value over time)

    Therefore, we see that

    2*[(+-C) = (+-Y)] = C-M-C = C-(?+?)-C

    Does this make sense? :-)

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  95. Roger: Even your simple equations are too much for me to handle :-)

    Just one short comment:

    You said: "semi-barter trade uses an intermediate to store value over time"

    It's that 'intermediate' we focus on. That's the dash I talked about. Let's have a look at gift economy without explicit recordkeeping.

    I give apples today and will take bananas next week. We can say I paid for the bananas by giving apples today (assume I was "even" before the trades). There is no intermediate acting as a store of value. But there is a common understanding that I can take the bananas because earlier I gave the apples.

    Should our recordkeeping be understood as this 'common understanding' made explicit? Perhaps it should. Others?

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  96. Johan said: "What I mean was that if we can conceive of [a] and [b] as a bundle, we need not concern us with the concrete properties of the bundle but can simply treat the bundle as a commodity in the abstract (C). Thus, we only need to concern us with the "exchange-values" of the two commodities and that's generally just a matter of addition in the case of a bundle. The physical property of the bundle becomes irrelevant as the "exchange-value" of the bundle becomes relevant."

    How does time affect all this?

    I would think that once a trade is recorded, the commodity and its 'exchange value' become irrelevant (from the recordkeeping's perspective). Exchange value of the particular good is something we can discuss when the trade takes place, but it is the agreed price which gets recorded, not the exchange value. What I mean is this:

    V1 sold an item last week. Agreed price was SK1.00. That was recorded. The exchange value of the same item might be double this week. That means that we are not adding exchange values when we add that SK1.00 to the credit balance of V2, SK2.00. All the figures are abstract. They get a more concrete meaning at the time of a trade, when they are connected with the price of a certain good.

    Two apples might buy a banana today. This tells us something about the exchange value of both goods, today. If an apple costs SK1.00, then a banana costs SK2.00. Today.

    If I sell a banana priced at SK2.00 today and buy an apple worth SK2.00 next week (price had doubled), what was the exchange value of the banana? Did it have one exchange value last week (two apples) and another this week (one apple)? If yes, which exchange value was relevant for me? Or was the exchange value of the banana SK2.00? If yes, what does that figure tell us? And if we assume I held a credit balance of SK2.00 between the two trades, was that credit balance a 'general expression of exchange value'?

    The more I think about it, the more it looks like we should be talking about prices, not exchange values. A credit balance of SK2.00 arises because I sold a good at that price. I don't yet know what the (for me) relevant 'exchange value' of that good was. If I tomorrow buy another good priced at SK2.00, then, by reference to that good, I can say something about the exchange value of the good I sold the day before.

    Something like this?

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  97. Antti questions "Should our recordkeeping be understood as this 'common understanding' made explicit? Perhaps it should. Others?"

    I would say "yes".

    If someone asked me "What did I pay for those apples?", I might say "SK105". My answer is stated in price-times-units. This number would probably be recorded by our record-keeper.

    If someone asked me how many Skilo were in my wallet, I might have answered "SK23". My answer would have been stated in units-of-SK . The record keeper has no reason to record this number.

    My "algebra" was more like symbol definitions. No wonder you didn't follow it. :-)

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  98. I should probably edit the previous comment to reflect the gift economy. I did not "pay" for the apples; instead, I took a debit of SK105.

    By the same gift economy logic, my wallet would become my credit account. My credit account should show SK23, stated in units-of-SK.

    Of course, SK23 units-of-SK could buy (before debit was incurred) SK23 price-times-units.

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  99. Antti, time makes changes in exchange value possible. It's only natural that exchange values of commodities change over time. Once a trade has occurred the commodity handed over becomes irrelevant from the point of view of (immediate) exchange; it is, so to speak, out of circulation. Yet the realized exchange value is still recorded in a way that, to me at least, may be thought of as a general expression of exchange value—not just applicable to a particular commodity or a particular bundle of commodities, but applicable to all commodities still offered for exchange. That's why the expression is general and not particular. Previously I said: "The physical property of the bundle becomes irrelevant as the 'exchange-value' of the bundle becomes relevant." I could expound on that and say something like 'relevancy begets independence'. After all, considering the example I laid out, it's that [? + ?] which has become relevant as an independent social phenomenon having impact on whether a subsequent trade occurs or not.

    [? + ?] appears to have value. What kind of value does it have? Well, it appears to have exchange-value inasmuch as it makes a subsequent trade possible. If [? + ?] would only be a "price" it seems empty an expression in this particular context because I would tend to think of "price" as the exponent of the magnitude of value, not a form of value in itself. Now if [? + ?] = [M], then it would be fairly straight forward to say, like for instance Anwars Shaikh would say, that "the quantitative worth of a commodity expressed in money is its price".

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  100. Johan said: "[? + ?] appears to have value. What kind of value does it have? Well, it appears to have exchange-value inasmuch as it makes a subsequent trade possible. If [? + ?] would only be a "price" it seems empty an expression in this particular context..."

    I agree that it has value; it is valuable (not worthless) to its holder; it's an asset.

    I'm not too familiar with all the value debates since the Classics. That would no doubt help in this debate. I would argue that it only makes sense to talk about the exchange value of 'things' (a good or a skill) that also have use value.

    The credit balance makes a trade possible, but so does often a zero or negative balance. How do you explain that?

    Generally, I would talk about the ability to buy. The value of that ability is derived from the goods to be bought. Any value a credit balance has to me depends on the price of the goods I will buy.

    I don't know if we are getting forward. There's little common ground, as I can't take the dichotomy of use and exchange value as a starting point, as if anything of value has to have one or the other.

    In my view this debate is unresolved. I see where you're coming from. I suspect what causes trouble here is what has always caused trouble for economists: the value concept.

    I don’t see a need to talk about value. The recordkeeping deals with prices, not with values. If we compare prices of different goods, then we can say something about the exchange value of those goods. If we objectify the credit balance and say that it has a price, then we can say it has exchange value. But I'm against this. Following Oliver, if the credit balance has a price, then the debit balance should have too. A negative price, an expression of negative exchange value? Sounds like Nick's red money. Which leads me to conclude that we shouldn't objectify the balances. And the best way to avoid that is too keep in mind the connection to the gift economy without explicit recordkeeping.

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  101. In my January 25, 2017 02:32 PM comment, I incorrectly wrote:

    "If someone asked me how many Skilo were in my wallet, I might have answered "SK23". My answer would have been stated in units-of-SK . The record keeper has no reason to record this number."

    My problem here is that in the gift economy, my wallet become the record maintained by the record keeper. In the gift economy, the record keeper would have calculated that I had SK23 remaining and therefore, would have entered "SK23" in the 'current total' column.

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  102. Antti on January 26, 2017 at 3:12 AM wrote "The recordkeeping deals with prices, not with values."

    I had the same thought when I incorrectly wrote my 'Jan. 25 3:21 PM' comment. In fact, that thought was exactly the reason I incorrectly wrote as I did.

    Here is what I think is a good way to think of the SK measuring system:

    Think of a line on a map between Seattle, Washington and New York City, N.Y.. Begin marking that line with marks for SK, starting at zero for downtown Seattle and ending at 3000 for downtown New York City. That is roughly one SK per mile of travel.

    With that scale in front of us, we can price an apple. If the apple price is SK2, the price mark on the scale would be roughly 2 miles east of Seattle or exactly 2 on the SK scale.

    If a bushel of apples contains 50 apples, the price (using SK2 per apple) would be SK100 and would be located at roughly 100 miles east of Seattle or exactly 100 on the SK scale. On the map, the mark would be at (roughly) Ellensburg, Washington.

    Now if I am asked how much do I have in my wallet (or on my gift record), I can reply using the map-scale as a reference. In my earlier example, I had SK23. Both I and the record keeper should agree that I have 23 units-of-SK in my credit column.

    We could locate my holdings of SK on the map at roughly North Bend, Washington or exactly 23 on the SK scale.

    Price and value are both just points located on the SK scale.

    This is the way I think about money in a physical sense. Does it make sense to you? :-)

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  103. Antti wrote: << The credit balance makes a trade possible, but so does often a zero or negative balance. How do you explain that? >>

    It seems to me it's the possibility to incur negative balances that makes a trade possible in the aforementioned case. When dealing with the particular case of the villagers, it was that kind of incurrence that wasn't possible, hence the focus on explicit records. But even if we were dealing with credit balances proper and the existence of some binding limits to them, then that's not a problem from the point of view expounded by the notion of "exchange-value".

    We only need to recognize that people who can incur negative balances (townsmen) operate in a context of possible "in-debt" whereas the ones with only recourse to positive balances (villagers) operate in the context of "non-debt". A change in the relative positions expressed as numbers (e.g., -3 vs. +3 = Δ3 in both cases if starting from 0) are still congruent in that both are expressions of "exchange-value" as to the same magnitude.

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  104. Sorry Johan, I didn't mean to paint you into a specific ideological corner. Nor do I mean to defend any rival ideology. I'd be out of my depth I tried and, following Antti, I'm not sure it's really necessary to go down either road for this particular discussion.
    I'll try instead to simplify the matter once more:

    In order to participate in 'monetary' exchanges, one must have some sort of access to the credit / debit system.

    For someone who can establish his / her creditworthiness with the central accountant, it is possible to acquire commodities and a corresponding debit first.

    Someone who cannot, for whatever reason, establish creditworthiness, must first acquire credits first which he / she can then give up in exchange for commodities.

    For the latter to be possible, there must a counterparty (either an individuals or some communal body, say the state) who either already has credits or has creditworthiness by which he / she can acquire commodities. Starting from scratch, which is also the title of this series, there has to be an original debtor (-M) for the original creditor (+M). So far, so simple, I hope?

    Now, what is the limiting factor for the SK amount of simultaneous transactions? Is it the amount of M outstanding? Because only then could one could make the claim that the exchange value of commodities is siginified by M. But what about those participants who have not maxed out on their credit limits? What about the order in which transactions are made? What about a possible change in perceived creditworthiness from the last round of transactions to this? Does M say anything about these variables? What does velocity refer to? Note, all this says nothing about whether exchange value, if it exists, resides in commodities or somewhere else.

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  105. Let's take a step back and let's try to understand why we would call anything 'an expression of exchange value'. There must be a simpler way to talk about these things. I see nothing "straightforward" in this Shaikh quote: "the quantitative worth of a commodity expressed in money is its price". I think it is such a complicated way to state the obvious that it is open to ridicule; the obvious being: If "quantitative worth of a commodity" has any meaning, the meaning has to be exactly the same as is the meaning of "price of a commodity". "The price of a commodity expressed in money is its price".

    In what sense do you or Shaikh use the word 'money' in that sentence? To me that 'money', skilo, in which the price is expressed is not something that ever is on an account. There are no skilos or dollars on the account. (I keep on repeating that at times I don't see you making distinction between the abstract "pricing unit" -- UoA might be misleading as it contains word 'account'? -- and the "stuff", credit balance, on the account.)

    Now the step back, all the way to the start of our monetary system.

    Betty has bananas that bring no direct utility to her (they have no 'use value' for her, because she is allergic to them). Then we could say that the bananas still have value to her, because she can exchange them to something which has 'use value' (utility) to her. We could call the value the bananas have to Betty 'exchange value'. This value exists because the bananas have 'use value' to someone else AND because this, in turn, allows Betty to exchange the bananas to something that has use value to her. So far, something can have exchange value because it has use value (utility) to someone.

    Andy and Betty agreed on a price of SK100 for the bananas in the first trade ever done using the new system. Betty did not get SK100 on her account. It was recorded on her account that she has given away goods priced at SK100. That's how I see this.

    The price, SK100, reflected the use value the bananas have for someone -- if not Andy, then someone he gives the bananas to. But we cannot say that the exchange value of the bananas was SK100. To say something about the exchange value of the bananas we have to know prices of some other goods. At least one good, if that's a good Betty will buy next. We put "price tags", like the SK100, on goods. That helps us to say something about the value of the goods. Value relative to something. Not value relative to skilos, not value relative to credit balances.

    How would you explain 'exchange value' in the case of Andy and Betty?

    (I don't feel I'm thinking straight. Again, I blame the concept of value. It just doesn't allow us to think and talk straight.)

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  106. Oliver, a quick reply. You wrote: << In order to participate in 'monetary' exchanges, one must have some sort of access to the credit / debit system. >>

    I get your point but I also think you are too restrictive in your definition. In a world of commodity-money that isn't necessary, yet we may talk about 'monetary exchange'. It's however true, that if we're dealing with the kind of system you allude to, then, of course, access to the credit/debit system is required.

    Oliver wrote: << Note, all this says nothing about whether exchange value, if it exists, resides in commodities or somewhere else. >>

    Exchange value is always in connection to commodities. Whatever "money" we may talk about, it loses its quality as such if nothing is offered for exchange. The same with a commodity in that whatever exchange-value you think your particular commodity has, if it does not exchange for any other commodity (or general expression of exchange-value), it does not have any exchange-value.

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  107. In a world of commodity-money that isn't necessary, yet we may talk about 'monetary exchange'.
    Following Antti's post, commodity money, just like paper money, is an objectified form of a credit entry meant for use by people who have no access to the central ledger and are thus bound by the cash in advance constraint. I do not believe in the fairy tale evolutionary account of commodity money that then morphed into credit at some point. That's the origins weed that needs to be exterminated :-).

    We agree that we need to see value in our commodities for an exchange economy to make sense. But the value debates were about whether exchange value is inherent in the commodity itself (say as labour time) or whether it resides in the eye of the beholder (subjective theory of value). Again, I'm no proponent of either theory, particularly not if it involves utils and marginal utility. I'm just trying to deconstruct your attempt to objectify the value of commodities by means of a stock measure of money.

    Take Antti's example above. A trade has taken place for SK100. Andy eats the bananas. What exchange value is the SK100 credit on Andy's account a reflection of now that the bananas are gone?

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  108. Antti, I will return later. Now just to this one in which you wrote: 《There are no skilos or dollars on the account. (I keep on repeating that at times I don't see you making distinction between the abstract "pricing unit" -- UoA might be misleading as it contains word 'account'? -- and the "stuff", credit balance, on the account.)》

    We don't need to find or conceive of the accounts as there being some "stuff" on them (as a physcal property). That's completely irrelevant. All that is needed is the recognition of them expressing value (as a social property). That's quite enough.

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  109. Oliver, we need to separate a discussion about the historical record (evolution) from a strictly theoretical one. I agree with the weeding part. But then again I made a theoretical statement (not really an important one but anyhow…). As far as I can see it still stands.

    I think the development of value-theory as such can be left for another discussion. I kind of fail to see how that affects the points made about use-value and, particularly, exchange-value in this discussion. We don't need to have a theory of the ultimate source of value in order to deal with exchange-value as a social category.

    It's good that Andy ate the bananas because it illuminates the situation where they are now really out of circulation. The physical expression of the commodities in question is now part of Andy's belly and gone from the circuit of exchange for good. What's left is the general expression of their exchange value; as something expressing the same exchange-value as any particular quantity of any other commodity which would exchange for that particular quantity of bananas just consumed (assuming Andy ate all of them).

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  110. I think I can live with most of that. Maybe it's just the associations that come with the term value that are bugging me. I had the same with the term gifting at first. Maybe the exchange value of blogging resides in its repetitious, ping pong, nature :-).

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  111. No doubt these comment exchanges have been of some value :-)

    I'm almost ready to conclude that we can move forward. It doesn't sound Johan is that far from me, although I might be wrong. A couple of things keep on bothering me:

    1. Johan renames 'money' as 'a general expression of exchange value'. The latter, too, can be exchanged for goods and it "resides" on an account. This bothers me, because I'm trying to get rid of the whole concept (not just word) of 'money', and Johan wants to keep it.

    2. I said "stuff", not stuff. What I mean is that the "units" on a price tag, say SK10, are "expressing value" as much as are the "units", SK10, recorded on a bank account. The goods are not priced in the latter units no more than they are priced in the former units. What I'm arguing against is the common idea that "UoA doesn't need to be the MoE, although it almost always is" (due to convenience, or whatever). UoA never is the MoE. Bank accounts or central bank notes are denominated in the UoA, but so are non-bank accounts (say "Sales"). The latter are not denominated in central bank credits. Perhaps this is what causes the confusion here?

    3. Johan said about bananas: "What's left is the general expression of their exchange value". This doesn't sound like something completely different from what I'm saying. But still it seems to lead to different conclusions. For me, what is left is the record of the price of the bananas traded (given and received). As I explained, that price, when compared to prices of other goods at the time of the trade, would tell us something about the exchange value of the said bananas. But even one minute after the trade, the recorded price, SK100, would not be an expression of the exchange value of the bananas. The market price of bananas might have changed drastically, and that is true for other goods. Should the general price level double in a day, how could we ever call the SK100 credit on Betty's account "a general expression of the exchange value of bananas sold by Betty to Andy the previous day"?

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  112. I said: "UoA doesn't need to be the MoE". Or vice versa. I'm not sure which way it is usually expressed. I guess it's MoE which is said to act as the UoA.

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  113. Oliver said: "commodity money, just like paper money, is an objectified form of a credit entry meant for use by people who have no access to the central ledger and are thus bound by the cash in advance constraint."

    It depends what is meant by "commodity money". What you seem to be suggesting might be true for, say, gold coins with a face value higher than the market price of the gold (bullion) in those coins. That is, face value higher than the intrinsic value.

    But if we take my first post as a starting point (I find it has some plausible elements when it comes to the history of money), then "commodity money" might be salt. Think like a historian viewing some records of (bilateral; perhaps even multilateral?) debts. Those debts are denominated in salt kilos ("s-kilos"). Could they be paid in salt? Perhaps they could, but that salt wouldn't be any objectified form of a credit entry (but it might still be called "money"). It would be a commodity. And the debts could as well be paid in wheat, copper or livestock, priced in s-kilos (price of one kg of salt = 1 s-kilo, so it's not an abstract unit).

    (I remember reading about some Egyptian unit-of-account... perhaps a sack of flour, which at one point became an abstract "sack of flour" so that a sack of flour might have cost "two sacks of flour". Have you heard something similar?)

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  114. So, the rest... and maybe some summary remarks as to the whole discussion so far (I post this before having gone through your last responses; will have to read them later).

    Antti asked: << In what sense do you or Shaikh use the word 'money' in that sentence? >>

    Shaikh takes the same path as, for example Marx, Sraffa and many other in that for them the chief function of money is that as a universal measure of value. Shaikh even mentions money as the medium of abstraction—probably a theme for another time? ;-)

    In short: commodities may have exchange value even though they aren't articulated in a general measure. Yet as a corollary to that: when the institutional setting is conducive to them being articulated in such a standard, price becomes the exponent of the magnitude of the value so articulated. The measure of the magnitude becomes a solely quantitative one, not a qualitative one.

    Marx: "The first chief function of money is to supply commodities with the material for the expression of their values, or to represent their values as magnitudes of the same denomination, qualitatively equal, and quantitatively comparable. It thus serves as a universal measure of value."

    Notwithstanding framing the discussion in a money-commodity like gold (Marx), that's not much unlike Piero Sraffa's contention when he, in turn, contemplates the distinction between a monetary economy and a non-monetary economy (Sraffa-archive material (D3/9/49, 50 in Bellofiore & Carter, 2014): "This I should describe as the existence of 'monetary constants'. They may be debts or any other legal obligations, habits or fixed decisions of individuals of the kind predilected by H." [H refers to Hayek which Sraffa set out to criticize later on].

    Now I haven't really touched upon the question regarding the unit of account already conveying a money-framework. I think it's not really relevant because it seems to me it's not that which you ultimately set out to disprove. Anyways, that's also more of a choice-of-definition type problem. I think it's the "medium-of-exchange" you're really after. Now the first line of attack seems to have been the "non-movability" of recordkeeping entries (or credit balances). I don't think that's enough or even pertinent anymore—the whole notion of "general expression of exchange-value" seems to also be problematic in that regard. Simply put: framing the attack on the existence of money by focusing on attributes such as durability, perishability and physical movability of money is a weak line of attack.

    What you/we should focus on—or at least I think that issue has now become further crystalized during our discussions recently—is the issue regarding *sequential trading*. That's where the villagers come in, cash-in-advance constraints and all, and that's where it seems that you're willing to introduce MOE-kind of thinking even though you set out to extinguish the same.

    Let me use Sraffa once more. Regarding the MOE-problem (Sraffa archive D3/9/104 in Bellofiore & Carter, 2014): "The use of money as a 'medium of exchange' cannot go without its being a 'standard of deferred payments' or a 'store of value', two attributes which are included in the above: this is obvious if money transactions succeed each other in time; and if they are simultaneous, they must be cleared against each other and no money is required."

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  115. Antti, contrast what you just wrote... ["The market price of bananas might have changed drastically, and that is true for other goods. Should the general price level double in a day, how could we ever call the SK100 credit on Betty's account "a general expression of the exchange value of bananas sold by Betty to Andy the previous day"?"]

    ...with what I wrote previously | JM: ["Yet the realized exchange value is still recorded in a way that, to me at least, may be thought of as a general expression of exchange value—not just applicable to a particular commodity or a particular bundle of commodities, but applicable to all commodities still offered for exchange. That's why the expression is general and not particular."]

    Yesterday's particular price of a particular commodity "lives on"… and is now expressed as today's general exchange-value in relation to any commodity. Notice how the particular and general creates a recurrent pattern. Forget the bananas from yesterday already, they are gone, and all that is left is the 'general' in reference to 'whatever' may still be out there.

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  116. What's left is the general expression of their exchange value


    what is left is the record of the price of the bananas traded


    It seems we all agree when we're looking backwards in time.


    Should the general price level double in a day, how could we ever call the SK100 credit on Betty's account "a general expression of the exchange value of bananas sold by Betty to Andy the previous day"?


    When we look forward, the wording 'expression of exchange value' becomes a bit wishy washy, because it's not clear which point in time we're referring to. On the other hand the term 'the record of the price' is strictly backward looking. It circumvents speculations about how value is carried into the future but that is also its weakness. Clearly, there's something missing. Why, how and when does a record of what happened yesterday have any relevance today? When does such a system work, when does it fail? Who controls it?

    I have no doubt that all this will be explained to everyone's fullest satisfaction in chapter 17 of Antti's General Theory, but Johan and I are impatient :-).

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  117. Thanks, Johan! I think your summary was very helpful. I'll get back to it in my next comment.

    What Marx is talking about in your quote is a numeraire, right? In my first post, salt (kg) was the material in which the value of other commodities was expressed. It acted both as a numeraire and a UoA. This combined role makes it possible to say something about the value of a cart-load of bananas when declaring its price to be SK100 (hundred salt-kilos, not necessarily payable in salt but in some other good "quantitatively worth" the same as 100 salt-kilos). No one asks what the price of a salt kilo is. Goods are priced, and one could say "valued", in salt kilos.

    With the abstract skilo, price and value went separate ways. Now we needed to compare the price (number) of a certain good to prices of other goods in order to say something about the value of the good in question. Skilo is not a universal measure of value, although giving goods a skilo-price allows us to say something about the relative value of goods. I can understand if someone would call that abstract skilo "a universal measure of value", or an "expression of exchange value", because when I as a seller decide to put a price tag of SK100 on my goods, I'm expressing my view on what the goods are "quantitatively worth". I didn't take the SK100 out of hat, but I compared my goods to other goods and their prices (could be one type of good, for instance in case of a commodity, or all kinds of goods, for instance in case of a new product), and that's how I arrived at a price for my goods.

    Are we on the same page?

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  118. It depends what is meant by "commodity money". What you seem to be suggesting might be true for, say, gold coins with a face value higher than the market price of the gold (bullion) in those coins. That is, face value higher than the intrinsic value.

    But if we take my first post as a starting point (I find it has some plausible elements when it comes to the history of money), then "commodity money" might be salt. Think like a historian viewing some records of (bilateral; perhaps even multilateral?) debts. Those debts are denominated in salt kilos ("s-kilos"). Could they be paid in salt? Perhaps they could, but that salt wouldn't be any objectified form of a credit entry (but it might still be called "money"). It would be a commodity. And the debts could as well be paid in wheat, copper or livestock, priced in s-kilos (price of one kg of salt = 1 s-kilo, so it's not an abstract unit).

    (I remember reading about some Egyptian unit-of-account... perhaps a sack of flour, which at one point became an abstract "sack of flour" so that a sack of flour might have cost "two sacks of flour". Have you heard something similar?)


    Well, I understood your first post to have established with the reference to salt, the first relative price of that which is given up. I never considered salt itself to be 'money', in the sense that if salt were used to 'pay' for something, it would not be a monetary exchange, but rather a barter exhange. The SKILO is a salt standard, the price (relative barter value) of salt being the measure that is referenced to in all trades henceforth. Just like the gold standard or the wheat bushel standard. There is no requirement for the unit of account to be abstract.

    To take the example from above: my bananas may be worth 1 kg of salt today and thus trade for SK1. They may be worth 2kg of salt tomorrow and thus trade at 2kg of salt in barter or SK2 worht of credits in a monetary economy. Walrasian or gerenal equilibrium theory, to my knowledge, would then posit that the price of bananas to all goods other than salt would have to change as well for there to be equilibrium. I, personally, am sceptical of that claim, indeed of the concept, but that's a different story, I guess.

    The point is that salt in a salt standard does not become a commodity money, in my understanding. It is either a commodity or money, as the two are logically mutually exclusive. I think that may actually be a point where I'm more of a fundamentalist than you are, if that's possible ;-). No, seriously, that is how quantum economists argue their case and I've found that quite convincing both on logical grounds but also from what little historical material I've read in say Graeber, Wray and probably others I can't rememeber.

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  119. Oliver said: "On the other hand the term 'the record of the price' is strictly backward looking. It circumvents speculations about how value is carried into the future but that is also its weakness. Clearly, there's something missing. Why, how and when does a record of what happened yesterday have any relevance today? When does such a system work, when does it fail? Who controls it?"

    Good questions.

    What I perhaps haven't said clearly yet (in earlier posts), or then it's gone missing during this conversation, is that the record of the price of bananas aspires to say something about the value of the goods given by Betty. (A surprising turn in the conversation? ;-)) If the system worked perfectly, Betty would get back not only something the price of which is SK100 the day she decides to "settle her account", but something the value of which would be not that far from the value of the bananas she gave (what value? that question remains, and should probably be approached through a comparison of the effort it took Betty to get the bananas in the first place and the effort it took someone to get the goods Betty later buys? but it will always remain imprecise, and debatable -- I'm not aspiring to give any new answers to this question).

    Such a system works well when there is no general rise in the price level. If there is inflation, we need to tweak the system so that it comes closer to what it aspires to achieve. Introduce interest rates. (I'm not saying that this is the only reason to introduce interest rates. And I don't want to introduce those yet.)

    Did I manage to at least partly answer your question?

    [This took a lot of edits...]

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  120. Oliver said: "I think that may actually be a point where I'm more of a fundamentalist than you are, if that's possible"

    Impossible :-) Nothing is 'money' to me. I'm just trying to understand how others think of 'money', what it means to them. I agree that trading salt for bananas is always barter.

    I understand 'gold standard' more or less as equivalent to a decision by our economy's authorities (incl. the central-banker) that the central bank would start to offer to buy and sell salt at a fixed price (per kilo) of, say, SK0.75. Would that be "commodity money", "salt money", to you?

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  121. Johan said: "Yesterday's particular price of a particular commodity "lives on"… and is now expressed as today's general exchange-value in relation to any commodity. Notice how the particular and general creates a recurrent pattern. Forget the bananas from yesterday already, they are gone, and all that is left is the 'general' in reference to 'whatever' may still be out there."

    Yes. This confirms my gut feeling that we might not be that far apart.

    Yesterday's price of bananas is compared to today's prices of other goods. This comparison has something to do with 'exchange value'.

    But to me (taking Betty as an example), if this is about exchange value, it is still about the exchange value of the bananas. Betty has given away bananas, but hasn't exchanged them for anything yet. The exchange value the bananas might have held for her hasn't been realized. That potential exchange value varies with the prices of goods she could potentially buy. Let's say next week she buys carrots, which she finds of great nutritional value to her, priced at SK100. In this way, she exchanged the bananas last week to carrots this week. No "general expression of exchange value" intervened as something she first exchanged the bananas for and something which she later exchanged for carrots.

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  122. Yes, it's obviously only a standard if the price of salt in skilos is kept stable at some ratio (initially 1:1). I would not call that commodity money, just a commodity standard. One could e.g. have a commodity standard in which the commodity itself cannot be used in payment. I'm not sure whether that wasn't actually the case during parts of the gold stanard. Obviously the monetary authority would have to be able buy and sell gold to influence the relative Price of gold. I'm not sure what happens when the value of money falls below the market value of gold when there are gold coins in use. I suppose those specific coins cease to be money and become a commodity, if there are other mediums in circulation (pardon the conventional language). If not, then I suppose the gold standard cannot undercut itself.

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    1. I'm not sure whether I contradicted myself there...

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  123. the record of the price of bananas aspires to say something about the value of the goods given by Betty. (A surprising turn in the conversation? ;-))
    Indeed! Your nothingness has developed a will of ist own. If something aspires to something, then I suppose it deserves the status of at least an abstract social entity, as per Johan's 'exchange value' or just simply 'money'. But I'm perfectly willing to detach the recording from that which desires. But it would seem the latter is at least as important as the former in describing the phenomenon that many of us call money.

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  124. Did I manage to at least partly answer your question?
    Yes.
    When you speak of the effort it took Betty to get the bananas, what do you mean? The amount of labour that went into growing and harvesting them? That sounds like the labour theory of value, again :-).

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  125. Maybe we could ask why Andy and Betty went to some effort to relate their exchange to something (the SK). Then they sought to have something recorded (by a third party). What are they seeking to accomplish?

    Is the SK just a tool of some kind? :-)

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  126. Antti, I will read your posts later with better focus. Sure, exchange-value did not intervein (as to the carrots). We still need social recognition as to what to do with such expressions... not being the number of lashes from the whip but preferably something else, lest we want exchange to continue. So, it seems to play an role where all this started: for the villagers.

    Generally regarding price. We can conseive of exhange-value without a price in the UOA sense, but hardly the opposite, specifically in terms of realized trades. Obviously one can put an absurd price tag on anything without it therefore ever being sold (pricing oneself out of exchange).

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  127. Oliver said: "I'm not sure what happens when the value of money falls below the market value of gold when there are gold coins in use. I suppose those specific coins cease to be money and become a commodity"

    This is a textbook case, where the coins stop circulating. They are either hoarded or melted and sold as "bullion". No sense in giving away gold worth $60 for something priced at $50, just because the coin has a face value of $50.

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  128. Oliver said: "the phenomenon that many of us call money"

    What phenomenon you have in mind?

    When I describe the trades as "gift exchange", to me that already clearly implies that it is not OK if I give ten bananas today and get five bananas next week (due to crazy hyperinflation). But if we shouldn't record just the price of the goods traded, then what information should we add, or what information should replace the price altogether? I don't see any workable alternative to recording just the price of the goods traded.

    How to make sure I get around ten bananas back? There's no across-the-board way to guard against changes in the relative value of bananas, but interest can help us to neutralize the effect of (general) inflation. With the help of interest (rates), we can try to have the records reflect the real, not nominal, value of goods given and received in the past.

    But at this point I would like to continue with "no inflation" assumption. OK?

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  129. Oliver said: "That sounds like the labour theory of value, again :-)"

    You little...! As I said, I have no new answers to this question. It has no direct bearing on my theory. And no, I'm not an advocate of the labour theory of value.

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  130. I will not use the word 'value' anymore :-)

    Prices and interest (both Wicksell and Woodford have published books named "Interest and Prices") are very crude tools, but there are no better tools for this job. When used together, they can help us achieve the outcome where Betty gives a certain amount of bananas and later receives the same amount of bananas (in a one-good economy :D).

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  131. I will try a fresh look at my question "What are they seeking to accomplish?"

    First Andy. In the gift theory, Andy is receiving a gift. Yet, part of the exchange requirement is that Andy agrees that the "gift" be priced and recorded.

    Andy must be reluctant to agree to that requirement. He has a (society imposed?) lifelong(?) limit on how much value-of-gifts that he can receive. He knows the limit value (which is measured in SK) and his acceptance of the gift will result in an account move in the direction of that limit.

    We can surmise that if Andy accepts the exchange, the pleasure of receiving the gift must be more than the pain of approaching his account limit.

    We can further surmise that if Andy is reluctant to agree to the pricing and subsequent recording of reception of the gift, Betty must be the enforcer and beneficiary of this additional effort. What would Betty be looking for?

    Betty could be looking for a gift(s) in return. The price selected could be the gift value(s) she expects in total repayment. There could be additional reasons that Betty wanted to set a price.

    We can surmise that Betty was also be looking for a time-durable record which was provided by the third-party.

    Perhaps, before I jump to conclusions, we need to agree that Andy and Betty have the exchange motives described above.

    The next step might be to discover the role of the SK. I think that looking through the eyes of Andy and Betty will describe a reality that, while ghost-like, would be real to them and will shape their future decisions.

    Does this make sense? :-)

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  132. I quote myself:

    "Betty has given away bananas, but hasn't exchanged them for anything yet. The exchange value the bananas might have held for her hasn't been realized. That potential exchange value varies with the prices of goods she could potentially buy. Let's say next week she buys carrots, which she finds of great nutritional value to her, priced at SK100. In this way, she exchanged the bananas last week [for] carrots this week."

    So, from Betty's perspective this is an exchange of bananas (given away on week 1) for carrots (received on week 2). On week 1 it is recorded on Betty's account that she gave away goods priced at SK100 (without receiving anything in return). On week 2 it is recorded on her account that she received goods priced at SK100 (without giving anything in return). Her zero balance after the two trades, one exchange, is a public recognition that she has given as much as she has taken (how much is "much" is judged solely based on price). She's "even" with the rest of the community/society.

    Sounds a bit like Arrow-Debreu, doesn't it?

    Goods exchanged for goods (no money). "Week1-bananas" sold, "week2-carrots" bought. Both priced at SK100 -> overall budget balance achieved, but no bilateral balance (bananas sold to Andy, carrots bought from Carol).

    But...

    The Walrasian auctioneer is missing? The trades are not made at t=0 (or week zero), but as events unfold.

    The model includes a bank.

    The goods are not priced in terms of a specific numeraire (an existing good).

    Anything else?

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  133. You little...!

    Pain? Yes, sorry...

    What phenomenon you have in mind?

    When I describe the trades as "gift exchange", to me that already clearly implies that it is not OK if I give ten bananas today and get five bananas next week (due to crazy hyperinflation).


    OK, you're right, everyone seems to have a different phenomenon in mind. I mean exactly that 'clear implication'. There seems to be some kind of morality involved. A shared morality, that can only exist if there is some mutual trust, based maybe on past experience etc. and one which compels debtors to comply with the social convention of reciprocity. I guess I'm saying it can't just be assumed, it must be clearly stated as a social mechanism that functions via the social obligations implicated in debt. That may seem tautological or obvious to you, maybe because you're very comfortable with all the gifting stuff, but I think it helps to state it explicitly in conjunction with the deb(i)t side of the accounting. Otherwise, hey we can just forget the debt and focus on the (M).
    If one were to build a model of gifting, debt would have to be the independent variable and compliancy with the obligation the transmission mechanism to further output. Or something like that (I'm no modeller).

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  134. Roger: The motives make a lot of sense.

    You said: "the pleasure of receiving the gift must be more than the pain of approaching his account limit"

    I'd like to rephrase that. The pleasure Andy derives from eating the bananas must be more than the pain he feels when he (assumedly) produces and gives away apples priced at SK100. The lower the agreed price of bananas, the less apples he needs to produce and give away. And, as you suggest, the higher the agreed price of bananas, the more carrots Betty gets from Carol (without incurring debt).

    There's no limit to gifts Andy can receive, if only he gives as much. There's a limit to how much Andy can be in debt; that is, how much more he can have cumulatively received than he has given at any particular point in time.

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  135. Oliver said: "A shared morality, that can only exist if there is some mutual trust, based maybe on past experience etc. and one which compels debtors to comply with the social convention of reciprocity. I guess I'm saying it can't just be assumed, it must be clearly stated as a social mechanism that functions via the social obligations implicated in debt."

    Why do people first take a house to live in and incur a debt of $300,000, and then work (give away effort and time), say, 10 years only to pay the "house gift" back?

    Let's ask people. I don't think we need to come up with explanations from scratch.

    I'm quite sure that some will answer that they are forced (by the "budget enforcer") to pay the house back, while others will say that paying it back is the fair or right thing to do.

    Overall, we people set up a system and then we see how it works. If there are some (unpredicted) outcomes which are seen as unfair (morality is always involved) or otherwise problematic, we will try to change/tweak the system. If that doesn't help, many of us will try to scrap the system altogether.

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  136. Antti: You are making an interesting restatement of Andy's pain judgement.

    I wrote ".....the pain of approaching his account limit"

    You wrote "....the pain he feels when he (assumedly) produces and gives away apples priced at SK100."

    It strikes me that these are two very different pains. As different as between 'my foot hurts' and 'my arm hurts'.

    I wonder if this difference in perspective is the wall preventing easy/common understanding of the SK?

    Hmmmm. :-)

    I see a change in my SK account as a move toward or away from my limit (which tends to be fixed in value).

    I occasionally consider what it takes to acquire an exact amount of SK. Since I have several sources of SK, it is cumbersome and vague to exactly make a relative judgement. Instead, I judge by habit, price memory, and current account level. Larger purchases require account shuffling or fail due to the account-limit.

    I could do what you are asking Andy to do but that is not the way I think.:-)

    Harking back to my SK scale on a map, what about two scales on the same map. Andy has a scale and Betty has a scale, but both scales are different. Both scales describe SK but Andy goes from Seattle to Chicago to have SK3000 while Betty still goes from Seattle to New York to reach the same SK3000.

    On these two scales, Andy will say that the apples are worth Cle Elum, Betty will say worth Vantage. If they both want to trade, they may compromise to agree that the apples are worth Ellensburg (about SK100 on the average between the two scales). At the agreed price of SK100, Andy thinks the apples are high priced and Betty thinks she gave away a bargain.

    I think two scales, both describing SK, is a version of Andy and Betty judging the value of SK by comparing SK to other commodities.

    Is this still making sense? :-)

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  137. Oliver wrote: 《Indeed! Your nothingness has developed a will of ist own. If something aspires to something, then I suppose it deserves the status of at least an abstract social entity, as per Johan's 'exchange value' or just simply 'money'. But I'm perfectly willing to detach the recording from that which desires. But it would seem the latter is at least as important as the former in describing the phenomenon that many of us call money.》

    Yeah, that forward-looking perspective shines throug in the case of the villagers. But of course it's also there for the townsmen regardless of access to negative balances. The need to symbolically manipulate credit balances may equally arise; in order to "afford" something otherwise out of reach.

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  138. Let's ask people. I don't think we need to come up with explanations from scratch.

    I have no problem with a pragmatic approach, although I suspect most economists would disagree on methodological grounds. But you will agree that if nobody cared about giving back, the system would not work? So keeping records alone is not sufficient.

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  139. Oliver: How is budget balance enforced in a gift economy without explicit recordkeeping? Everyone keeps mental records, those are shared with others (rumors), and people who don't care about giving back are shunned. They stop receiving gifts. Makes sense?

    Yes, the system doesn't work if people don't care about giving back. That itself is a very good reason to give back, if one believes that the community would be worse off without the system? But because there are always potential freeriders, there must be enforcement.

    The community is the ultimate enforcer. The banker acts on behalf of it; because he sits with the records, he is best positioned to enforce everyone's budget balance.

    I guess I haven't been explicit about this yet? Do you see that this changes the narrative?

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  140. Do you see that this changes the narrative?

    No, and you have alluded to it here and there. I guess I'm trying to think in terms of a simplified expression for all the above. You've packaged record keeping into one concise term (record keeping...), now I feel we need an equally concise term to describe why and how records matter.

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  141. A corollary question to the above: would the records even *matter* if they weren't expressing some kind of *value*?

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  142. Johan: I've never denied that a credit balance is valuable to its holder. It's a record testifying the amount of "gifts" given by the account-holder and as such entitles her to receive "gifts" without incurring a debt. Should Betty have a SK1,000,000 credit balance, she might be able to retire and eat the fruits of other people's labor for the rest of her life.

    Simply put, my objection to "C-?-C" is about this:

    My neighbor gives me a ride to town. Based on unwritten -- or even written -- rules, this creates for me an obligation to pay him back by providing a similar service to him in the future. The obligation implies a right: my neighbor is entitled to receive a service from me in the future. I owe him one.

    When I provide that service later, have I fulfilled my obligation, or have I exchanged my obligation (negative) for the service I provide (negative to me)?

    Likewise, has my neighbor exercised his right by accepting a service from me, or has he exchanged his right (positive) to a service provided by me (positive to him)?

    As discussed earlier, from micro perspective this is mostly a matter of semantics. From macro perspective, it makes a difference whether we see this kind of right as an item which can be exchanged for goods, and vice versa. 'Exchange' implies that the right doesn't disappear but ends up with the other party to the exchange (this is how 'money' is usually explained?).

    An example:

    Betty has a positive SK100 balance. Andy has a negative SK100 balance.

    Andy gives (i.e. sells) apples priced at SK100 to Betty.

    Andy had an obligation to give goods to others. He did it, and now he doesn't have that kind of obligation. We can say he fulfilled his obligation.

    Betty had a right to receive goods from others without incurring a debt. She received goods from others (Andy), and now she doesn't have that kind of right anymore. We can say she exercised her right.

    If, instead, we objectified Betty's right, we would talk about Andy receiving a right from Betty; a right which is then netted against Andy's obligation, and both disappear ("money is destroyed").

    I'm not saying the latter description doesn't make any sense. I'm just saying that it sounds more complicated than the former.

    Again, we get back to Nick Rowe's 'red money'. 'Red money' is the obligation objectified. The obligation (or 'liability', as Nick calls it) is something the seller, Andy, gives to the buyer, Betty. The obligation Betty receives is netted against the right she holds -- and both disappear (two types of 'money' is destroyed).

    I find this quite interesting. You?

    I've told Nick that it seems that he and I have encountered the same problem, but have solved it differently. Instead of objectifying the obligation, like Nick does, I've decided to de-objectify the right. One could say that Nick doubles the money, while I get rid of money.

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  143. I said: " It's a record testifying the amount of "gifts" given by the account-holder"

    As we discussed earlier, the way we express the "amount" is far from perfect. That's because the "amount" could as well be called "value", but the "value" is not only impossible to measure; it also seems to be impossible to define what exactly is meant by it.

    But there doesn't seem to be any better way available. We record the price of goods and then we try to amend the records in face of a general rise in price level (for instance Silvio Gesell was concerned with the opposite: amending the records amid general fall in price level) so that the records would better reflect the "real value" of the goods given and received.

    If one is supposed to give "as much" as one takes, then inflation clearly works to defeat, in the absence of amendments to the records, the purpose of the recordkeeping. If we leave inflation aside, then the decision on "how much" is given and received is left to the trading parties, a buyer and a seller, who answer it by agreeing on a price.

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  144. Oliver: I think I see what you mean.

    You think I haven't yet "motivated" the recordkeeping in a clear enough way? It's not enough to say that its purpose is to make sure that people give as much as they take (when acting a part in this "market mechanism")?

    I think that of all my blog posts, Part 3, especially the reference to Ostroy ("How to enforce BUB [budget balance] without imposing BB [bilateral balance]?"), comes perhaps closest to motivating the use of the system.

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  145. Antti,

    …but how do you explain, for example, "profits" and "losses". Take one of the easiest examples: You buy a commodity for SK100 and then sell for SK110 (take—give). Now that's SK10 profit for the same commodity. Why is the accumulation of +10 as per recordkeeping seen as giving to community, while, if you undersold for -10 then that's seen as you having received from community?

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  146. Johan: A good question.

    First of all, I think this is about information: What does the recordkeeper know, what does he not know, and should he care for the latter?

    For all the recordkeeper knows, I could have given more than I originally took. The SK10 might not be "pure profit" or profit at all (you assume it is, and I get to that in my last paragraph).

    Perhaps I improved the product or carried the heavy commodity some distance? This is something I never need to prove to the recordkeeper. What I took was "valued at" SK100 by the seller and me. What I gave was "valued at" SK110 by the buyer and me. (Our history is full of price disputes and discussions about "just prices".)

    As a merchant, I could try to defend my contribution to the community by insisting that my mere existence as a widely-known and -trusted trading partner is beneficial to the community. If I bought the commodity from A and sold to B, it is because it was hard for A and B to connect with each other directly. It was easy for A and me to connect and A found SK100 a fair price for the commodity. Likewise, it was easy for me and B to connect, and B found SK110 a fair price for the commodity. Thus, I earned the SK10 for my services as an enabler of more optimal distribution of goods among 'agents'.

    If I happened to have priced in advance a specific salary to myself at a lower price, the difference is due to difficulties in estimating the "value" of my contribution to the community before I have provided the said contribution.

    To say that the merchant didn't really earn the credit (SK10), that he didn't give anything to the community, would be to side with the great number of people(s) throughout history who have viewed merchants, if not as despicable people, then at least of low social rank (which often varies with how one's contribution to the society is perceived). This remains debatable. Perhaps justly so, as a reminder to the merchants that there is a limit to "just profits"?

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  147. It could be about information but it could also be about power. The merchant and the producer might be one and the same, thus depending on salary paid for labor it could equally determine whether the producer-merchant is seen as a giver or a taker. Pay more for labor and you might be recorded as a taker; pay less for labor and you might be recorded as a giver.

    I find it paradoxical that when someone undersells (as per the previous example sells at -10) for, say purely altruistic reasons… in a 'gift-economy' that might be viewed as being a taker. Is that sensible; whatever the knowledge of the record-keeper?

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  148. When we consider the symmetrical case of a SK10 loss, then it seems we should be happy with a more blunt answer (in both cases): Price doesn't capture "value". (Although it aspires to capture it :-))

    I bought at SK110 and sold at SK100. Didn't I enable a more optimal distribution of goods among 'agents'? It might very well be that I did. But my ability to benefit from it depends on my ability to price goods. In order to get our contribution recognized (within the exchange system), we need to be able to get someone to agree on a price.

    But again, how else could we measure "how much" is given and taken? In a larger community, I don't see we have any better option than focusing on the price, corrected for inflation. If this leads to outcomes that are seen as unjust, then we need some amendments to arrive at a more just outcome. But it is very hard to decide what is just and what is unjust.

    Any thoughts? I don't think these are easy questions. Having said that, I don't see how these issues would speak for the existence of 'money'. Do you?

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  149. Johan said: "I find it paradoxical that when someone undersells (as per the previous example sells at -10) for, say purely altruistic reasons… in a 'gift-economy' that might be viewed as being a taker. Is that sensible; whatever the knowledge of the record-keeper?"

    A really tough challenge, but let's see if we can find at least some sense in that.

    In this context, morality is (mostly) set aside. If you're being altruistic and this leads to a record (a negative balance) of you having taken more than you have given, it doesn't label you as a "taker", as opposed to a "giver", in any moral sense. It just records your budget position at this moment in time, subject to changes as you will proceed to give and take in the future. The society is not divided into givers and takers; people's balances can change from day to day.

    An example:

    Andy is altruistic. He knows that Carol is having difficulties with getting a good price for her carrots. The whole week, she has only sold carrots commanding a total price of SK90.

    Andy knows that Carol wants bananas. Andy buys bananas from Betty @ SK100. Then he sells those same bananas to Carol @ SK90 (making excuses if Carol thinks the price is low). Without this gesture from Andy, Carol could only have exchanged her carrots for a smaller amount of bananas.

    To close his negative balance of SK10, Andy sells some apples to Dan.

    The outcome:

    Andy gave apples to Dan and will not (be entitled to) receive anything in return for those apples. His balance is zero. Isn't this the outcome an altruist would like to see: having given more than he has received, but not having earned a right to take something in the future?

    The object of Andy's altruism, Carol, has received more bananas than she would have received had she directly exchanged her carrots for bananas. She has received more than she has given, but without incurring a debt. Isn't this the outcome the altruist, Andy, wanted to see?

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  150. Using the SK giving scale, how would would the recordkeeper value the public service provided by a policeman?

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  151. Antti, yeah, that would be a case of "symbolic manipulation of credit balances" (alluded to in another post earlier). It seems that we're never really far away from such of considerations in order to achieve outcomes otherwise not attained (like embodying *altruism* in the gift-economy or *affording* something when limits kick in). That's possible by over- or underselling, and/or perhaps in the case of the villagers, simply by directly manipulating the credit balances. So there's some gravitation towards independence as to their interpretation.

    Notwithstanding considerations of money as UOA & SOV: I'm not sure if we're as far as being in the 'medium of exchange' or 'medium of circulation' (as Marx would have it) realm yet, I don't think so, but it's not far away either.

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  152. Johan: Yes. I don't think we are ever going to be that far from the MoE. After all, it must have made some sense to see 'money' existing, as a MoE, or else we wouldn't have been fooling ourselves for so long ;-) What I'm suggesting is that if we choose not to see it (as opposed to choosing to see it), we can find new answers to many old questions that haven't been satisfactorily answered yet.

    You said earlier: "Pay more for labor and you might be recorded as a taker; pay less for labor and you might be recorded as a giver."

    Isn't this what we should expect? If the manufacturer prices labor (something he takes) higher, he is taking more -- and admits it. If he manages to price the labor lower, so that labor accepts the lower price, then the manufacturer is taking less. If we keep the selling price of the manufactured goods he sells (that is, what he gives) constant, then his balance depends on how much he takes. That sounds right?

    This is not meant as a normative statement. If we take price to be the measure of how much we give and take, then what I say above should be true.

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  153. Johan: To finally get back to your villager example, which went like this:

    ------------------------------------------------------

    [?] Is that which prevents or allows a trade to occur even though from a macro perspective the figures could be such that that they would allow a trade to occur, i.e., commodities have already been given away. Townsman A has an item for sale at SK3. Villagers V1 and V2 have already sold an item each to townsman B for SK1 and SK2 respectively. So from a macro perspective it should be possible for the villagers in cohort to buy the item from townsman A. That's not however the case for them as individuals. The item in question being a diaper also makes sharing hopelessly unattractive so let's not take that as an option. No trade occurs. That trade could, however, have occurred with another division of [?] …namely by combining [?] of villager V1 with [?] of villager V2 to either one's benefit. By implication then, the other one have given away something more than a commodity. Why is that not a title to [?] given away or transferred?

    ------------------------------------------------


    I want to first make it clear that as far as the recordkeeper -- and the community who holds an interest in the recordkeeping -- is concerned, the villagers, like townsmen, are free to report trades even if there aren't any existing goods changing hands. So V1, while in town, can instruct the CB to debit his account and credit V2's account, both with SK1.00. No questions asked, as there isn't any potential disadvantage to anyone else than V1 or V2.

    As I explained earlier, I'm looking for a general description. You seem to be after a special description, perhaps in order to bring 'money' into existence? :-)

    If we replace V1 with a townsman, say TB, who has a negative balance of SK1,999 and a credit limit at SK2,000, we have a situation which seems not much different from your example. No purchase of a good priced at SK3.00 from TA seems possible, unless V2 and TB get together and form a cohort of one kind or another. Yet, we cannot say that TB gives away, or transfers, a title to [?] if his account is debited so that V2 gets to buy the good from TA. Or can we?

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  154. Roger: The recordkeeper is not responsible for valuing the service provided by the town sheriff. The Town Council is.

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  155. The Town Council comes up with a scheme. They will get some credits from the Recordkeeper, just like Andy did. They will pay the town sheriff using these credits. They will get the credits back at little at a time by charging a 5% tax on each credit every time it crosses the border between villagers and townsmen (each way).

    This idea sounds good to townsmen. It reduces the need for taxes on gifts, which is certainly nice. It solves the problem of getting the villagers to help pay for the town sheriff.

    Because only Andy and the town sheriff have any paper credits (at the start), the tax load can be traced. Or can it.

    I won't try to trace the tax load. I can predict that at a tax rate of 5% at each border crossing, an initial SK100 can support SK2000 value of boarder crossings before the initial SK100 is back in Town Council ownership. That should be useful in supporting trade between townsmen and villagers.

    Credits would be very close to 'money' if we considered this to be a viable solution to paying the town sheriff. :-)

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  156. Antti wrote: << As I explained earlier, I'm looking for a general description. You seem to be after a special description, perhaps in order to bring 'money' into existence? :-) … >>

    It's not that I particularly want money in (as in MOE ), it's more about the story taking a turn toward independency in regards to credit balances, which, in turn, may invite explicit recognition of them as some kind of necessary intermediary determining if a subsequent trade occurs or not. But it's not just a particular case because the problem appears to always be present depending on the magnitude of a trade relative to any individual limit.

    So, if we can say that a villager is giving up [?] by which [? + ?] is the necessary amount of [?s] for either one of them being able to buy the item, and where the one giving up [?] to the benefit of the other therefore loses an opportunity to buy something worth the amount so transposed (or relative to his overall limit)… we're sort of approaching the classic idiomatic case of 'looks like a duck, swims like a duck, quacks like a duck…'

    Whether we're talking about the villagers with positive-only balances or townsmen with positive and negative balances does not seem to make a difference in how we might conceptualize such intermediation. A townsman with a balance of +100 cannot "afford" a house worth 2200, but after someone instructs the banker to credit his account with 100 (by debiting the account of the one giving the instruction) it's now possible, provided the one instructing is at -1900 or further away from his or her limit.

    As one party is losing purchasing power another one is gaining as to exactly the same amount. That seems undeniable. There's a causal relationship between the loss and the gain. So the question is: can we call that a transfer of purchasing power from one party to another?

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  157. Johan: I see what you're getting at.

    You say that there is independency of credit balances, but what you describe looks to me like independency of records? To me, that's an important difference. If we debit an account with zero balance, we are not taking away credit balances; we are creating an obligation. Likewise, if we debit an account with a credit balance, we are not taking away credit balances; we are reducing, or nullifying, rights.

    You are right about the constraints the system places on trade. The whole point of the system is to make trade flexible while taking care that not too many "empty promises" are made. This kind of flexible trading is only possible in an environment of trust.

    The records can have independence from actual trades as long as things add up on the aggregate level. All kinds of cohorts are possible. V1 and V2 could be, say, brothers (business partners). Their trades are made in the family's (partnership's) interest. By asking the CB to debit his account and credit V2's account, in the absence of a trade, V1 is effectively saying that I have given goods but I want V2 to take the goods I have a right to take. Seen together, we, V2 and I, take as much as we have given.

    A transfer of purchasing power doesn't sound necessarily wrong. But PP isn't 'money', is it?

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  158. Antti, hmm, how do you see the distinction between records and balances? I think we are talking about them in two ways:

    (1) independence in regards to affordability, as in a particular amount of credits or a balance-position informing us about the magnitude of "exchange-value" under consideration, i.e. regarding questions like what and how much can be purchased and how much is lacking;

    (2) independence from actual trades with commodities, i.e. the ability to directly transact with credit entries creating particular balances relative to some credit limit.

    #1 appears to be more about recorded credit balances, whereas #2 appears to be more about recording as such.

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  159. Johan: To me it's at least partly a distinction between entries and balances. I have discussed this on many occasions, also in Nick's blog with JKH. This is quite hard stuff, and it takes me time to put it into words. Let's see.

    "Money", "credits", "credit balances", "funds", "expressions of exchange value"... This isn't "stuff" a townsman with a credit balance of SK100 needs if he is to buy something worth SK200. Regardless of the account balance, he needs an ability to debit his account with SK200. That is not SK200 worth of 'credits' deducted from his account. That is a debit entry made on the account. As I said earlier, the same reasoning applies to villagers.

    Entries are made and these entries affect the balance, because the balance is the sum of cumulative entries. Changes to the records are changes to the records; they are not transactions with credit balances; not even with credit entries, as there are always two entries: a debit and a credit.

    You said: "... how much is lacking".

    I think this a quite central question. How much of what is lacking? What is it that is needed to get the debit entry related to the purchase made on the account? To go back to your example of a townsman buying a house, we could say that he lacks 'credits', a credit entry or credit balance worth SK100. But to be precise, we must conclude that he lacks the ability to debit his account with SK2,200. He'd get this ability either via SK100 credit entry made on his account or via a SK100 extension to his overdraft limit.

    Is 'purchasing power' that which is lacking? In a way, yes. But purchasing power translates directly to "ability to buy", so it doesn't make us much wiser. "I'm not able to buy the house, because I'm lacking something. What? Some ability to buy."

    This is quite frustrating? We lack a common language. That could be a sign of two "paradigms". Or then it's just a sign of my wickedness/stubbornness.

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  160. Interesting!

    I just found a simplified version of Kocherlakota's "Money Is Memory": https://www.minneapolisfed.org/research/qr/qr2231.pdf (The Technological Role of Fiat Money)

    In it he writes:

    ------------------------------------------------------------------

    In the monetary economy, whenever an agent gives up consumption, that agent receives a sum of money which can be used to purchase consumption in the next period. Analogously, in the gift-giving game, an imaginary balance sheet is kept for each agent. When an agent gives consumption to someone else, the giver's balance rises, and so does that agent's capacity for receiving future gifts. When an agent gets consumption from somone else, the agent's balance and capacity for receiving future gifts both drop. In the monetary economy, money is merely a physical way of maintaining this balance sheet.

    Note that the gift-giving game differs from the monetary economy in only two respects. One is that in the gift-giving game, money does not exist. The other is that in the gift-giving game, all agents know about all past transactions. Thus, the gift-giving game does not introduce any means of enforcement or contracting that don't exist in the monetary economy. Technologically, then, money is, indeed, a form of societal memory."

    ------------------------------------------------------------------


    Any thoughts?

    Are our townspeople playing a gift-giving game with non-imaginary "balance sheets" (I'm not happy with that term...), and this game spills over to the village economy and makes it a monetary economy? (That's actually not that far from the way I had thought to continue our story!)

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  161. Quick comment on the evolution of the story and the spill-over effect: Antti wrote: << Are our townspeople playing a gift-giving game with non-imaginary "balance sheets" (I'm not happy with that term...), and this game spills over to the village economy and makes it a monetary economy? (That's actually not that far from the way I had thought to continue our story!) >>

    Mauss describing the context of exchange: "In the systems of the past we do not find simple exchange of goods, wealth, and produce through markets established among individuals. For it is groups, and not individuals, which carry on exchange, make contracts, and are bound by obligations…"

    Marx said as much 50 years earlier, plus the spill-over: "Objects in themselves are external to man, and consequently alienable by him. In order that this alienation may be reciprocal, it is only necessary for men, by a tacit understanding, to treat each other as private owners of those alienable objects, and by implication as independent individuals. But such a state of reciprocal independence has no existence in a primitive society based on property in common, whether such a society takes the form of a patriarchal family, an ancient Indian community, or a Peruvian Inca State. The exchange of commodities, therefore, first begins on the boundaries of such communities, at their points of contact with other similar communities, or with members of the latter. So soon, however, as products once become commodities in the external relations of a community, they also, by reaction, become so in its internal intercourse."

    We could also (perhaps?) view the norms of how the villagers must transact with the townsmen—i.e. positive balances only—having impact on how townsmen themselves view their internal relationships.

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  162. Johan: I think patriarchal families, clans and tribes as building blocks of the past, and some contemporary, societies are something which is good to keep in mind (and it is interesting stuff!). I've been thinking about those quite often lately, after I started to read Larry Siedentop's recommendable "Inventing the Individual: The Origins of Western Liberalism".

    But as you see, the picture I've painted of the town society doesn't represent a society Mauss or Marx had in mind. It is already a society of individuals (not a group of homo economicii(?) though). One of the points I wanted to make with the help of the villagers is not that this is about "us vs. them", but that there are people who are not well enough known to the people responsible for the exchange system and so cannot be trusted (yet). I also left it open for villagers to have negative balances later, once they, individually, become known, trusted and respected (by the townsmen running the system) trading partners.

    Neither do I intend to keep the overdraft limit (for townsmen or villagers) the same across-the-board. Perhaps I have complicated this discussion by not changing that yet. I already tried to hint at limits set person-by-person by mentioning the "Investment Committee".

    I'm not trying to make a historical argument, but I want to keep history in mind when I'm making my argument.

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  163. I just published a new post. It doesn't mean that I think it's time to kill this particular discussion. At the least, I hope we can get some summary remarks from Johan before closing this off :-)

    Before that, it might be useful to discuss Kocherlakota's statement in more detail, should you find it interesting. Overall, I have now read a lot of papers related to money vs. (multilateral) credit, and there are two things these seem to share, and which I find weird:

    1. 'Money' is always modeled as physical cash, "fiat money". It is always randomly distributed to the agents (as an endowment).

    2. In the "multilateral credit" / "public recordkeeping" version, the seller is always interested in the trading history of the buyer. This contrasts with my version, where the seller in the context of a particular trade only cares for the record related to his own trading history, namely the credit entry on his account, and doesn't know nor feel that he needs to know something about the buyer's trading history.

    Could it be that both of these things are due to the absence of institutions in these models? Without some kind of public institutions (I view the central bank and the Town Council, representing the people, as key, interlinked institutions) you cannot tell the story the way I do it. You cannot model the monetary system in a realistic way.

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  164. Antti, summary then, and extension to my last post having indirectly introduced two terms ('alienable' and 'independence')…

    It seems to me that definitions of money (as in MOE) involves a similar kind of 'alienability' in regards to recordkeeping and 'independence' in terms of recordings being capable of expressing a magnitude of exchange-value.

    The usual way to create alienability and independence is by creating distinct items (e.g. notes) so imbuing both features—a distinct alienable item (a note) and a distinct expression of the magnitude of exchange-value in question, say SK100.

    Antti, you seem to have the view that in order to talk about money proper (MOE) it needs to be an alienable object, hence the exercise of decentralizing the recordkeeping creating that alienable object in the form of a credit note (alienable = transferable to the ownership of another). In a way, that seems to also have been the view of Piero Sraffa although he expressed it in terms of money having an "identity" (he also made a distinction between circulating and hoarded money for illustrative purposes). Hence in a pencil-note (Archive D3/12/16) he compared the disappearance of money to that of disappearance of circulating capital in an agricultural society when machinery took over. The machinery in the agricultural realm is thus, according to Sraffa, comparable to bank deposits and cheques in the money realm as to their effect:

    "…what really happens in the last stage, when units of money lose completely their identity, is that money has ceased to <> i.e. to have a separate existence: we have pure barter—which thus is the highest stage in the development, while it is attributed to the lowest (cf. Marx on the isolated individual)."

    I, on the other hand, emphasize the other part; the independent expression of exchange-value which is not contingent on the element in which it it's expressed. Within the system of centralized recordkeeping it's still possible, in some way at least, to create alienability in a purely abstract way because we're always able to measure/extricate a particular magnitude of exchange-value when so needed. In other words: we can always isolate a particular "portion" from individual balance-positions (for the villagers it's the distance between zero and the existing balance from which such portion can be isolated; for the townsmen it's the distance between the credit limit and any outstanding balance).

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  165. For some reason the word exist was removed from the Sraffa quote... <> = .

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  166. Johan: Do you see how I have turned it all around by saying that 'money' (as notes) comes to existence only as a device to facilitate the "pure barter"? So to me it's not about 'money' disappearing and the society ending up with "pure barter", as Sraffa thinks.

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  167. Yes, the comparison was mainly in regards to how you and Sraffa seem to have a similar view (arguments) relating to when we may say that money exists and when it does not, especially, it seems to me, in the MOE sense. The narrative development is inverted of course. Think of Sraffa's version as when all villagers are being incorporated in the ETRS-system.

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  168. Yes, I understood it. You're right about the similarities.

    I think Sraffa's view has been shared by, for instance, Jevons, Wicksell and Hicks.

    Jevons viewed the evolving banking system as a clearing system, and noticed that we could get eventually rid of currency altogether, in which case the system would be a perfected system of barter.

    Wicksell, echoing Jevons, gave an example where Norges Bank would call in all notes and sell its gold, and instead rely on pure "giro system". According to him, in that kind of system “money means henceforth only the unit in which the bank’s accounts are kept.“ Note that he doesn't say that money means the units on the accounts, but the unit in which accounts are kept (that is, denominated; in other words, 'money' would be an abstract UoA).

    Hicks has mentioned, on more than one occasion I think, that we are on our way to "pure credit".

    I understand your focus on the villagers (after all, I was looking for this kind of comparison when I took in the villagers), but I also feel that you are taking it too far. I think I'm echoing Oliver when I say that even if the villagers seem to have "green money only", or a CIA constraint, they are nevertheless part of an exchange system where others are allowed negative balances. The village economy is an open economy -- otherwise they wouldn't be using what looks like 'money'.

    I don't see how we could have a macro theory built on the premise of the village economy using notes, 'money', which has no intrinsic value but is somehow accepted by others in exchange for goods. This 'money' would be "a mystery" (as Joseph Sommer explained 'money', I think). No. We need to explain how the value of the notes is derived from the role they play in the wider economy (town + village). That removes much, if not all, of the mystery involved.

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  169. Well, the notes are accepted because they are socially recognized as expressing exchange-value. In that sense they are no different from commodities. Value is always going to be immaterial yet objective due to its social characteristic. No matter how much you dig into a stone you will not find gravity in the stone itself. The same goes for commodities (and money): you will not find value residing in them regardless of how much you slice or excavate. They are merely bearers of value.

    When it comes to building social theory I find Sraffa's rule of thumb to be a pearl:

    "Actions do not require a rational justification—they are objects of explanation."

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  170. Johan: That's just too abstract for me. "Bearer of value", "an expression of exchange-value". Why not. But what we should be interested in is why the notes bear or express value, and that's what I'm trying to explain in very concrete terms (instead of talking about some "social convention", I try to explain what exactly that convention is and how it has arisen).

    It cannot be hard for you to see how a villager will accept a credit note in return for goods he gives, because that credit note, in the wider economy, serves as a record of him having given goods of certain price without receiving any goods in return, and this record in turn means that he is entitled to receive goods of the same price later because the whole record-keeping system is built on the premise of this kind of reciprocity? That's what the "social convention", "contrivance", or whatever, is about.

    No reason to use the word 'value'. Within the "Theory of exchange", we do fine with the word 'price'. "Theory of value" is what deals with questions like "Why that price and not another?".

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  171. Antti: In your last comment, you write " No. We need to explain how the value of the notes is derived from the role they play in the wider economy (town + village)."

    Please let me offer a path to the possible solution of this problem. The answer may lay in the tendency of society to set standards such as a "minimum wage". Another such standard is the "salary of government workers".

    I had this path in mind when I suggested that the Town Council might follow Andy's lead and pay the town sheriff in paper credits. I had the same path in mind when I suggested that labor be the commodity that could provide a link to money.

    What is the common element(s) between labor and money? Both can be produced out of nothing in this important sense: Labor can produce valuable results (using only materials available) if the owner of labor has the will to sustain production. Money can be created by anyone with the will to produce money.

    The trick is to link value of labor to value of money. This requires a time period of consistency where-in, for what ever reason, a set of ratios (between (for example) hours of labor and wages in money) become "the standard".

    You can see that simply to have a scale (the SK) is not enough. There must be a standard relationship (at some important level of social interaction) that establishes a visible and logically attainable comparison. For townsmen and villagers watching the town sheriff, credits exchanged for hours-on-the-job can be such a comparison.

    I am not sure your little community is ready for part 8 yet! :-)

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  172. Roger: Why would the sheriff be "paid" in "paper credits"? Why not just record on his personal account in the bank ledger that he has given a service (labor) priced at, say, SK500 a week? Pricing of the service is up to the Town Council and the sheriff.

    Forget "value of money". That concept can be abandoned an instead we can talk about prices of goods. Forget "production of money"; instead, we can talk about recordkeeping.

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  173. Antti, value is why there is exchange in the first place. We can only meaningfully talk about price (a later derivative) after we have some common measure of value.

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  174. Well, I don't see that any common measure of value exists.

    Even if it existed, what I meant is that the recordkeeping deals with prices. Should you have a $100 positive balance on your bank account, as a result of you selling three hours of labor in 2016, what you are entitled to get is any good which you get the seller to agree to price at $100. That good might be a new pair of boots (in 2017) or it might be a paper clip (in 2030, after a big inflation that took place while you were in coma). After finishing the exchange, you can on your own ponder whether you got your labor exchanged for something of similar value or not.

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  175. Antti: "I don't see that any common measure of value exists."

    Here I completely agree. It is this very lack of "common measure of value" that drives the use of money as an intermediate commodity. Hence, my term "monetary semi-barter" which carries the implication that we are bartering money for goods.

    If we allow money to be a commodity, it is no surprise when it changes value just like apples change value seasonally (or three hours labor -> money + time -> paper clip).

    OTOH, if the town council in 2030 paid the town sheriff the same (for the same time period) as in 2017, perhaps three hours of my labor might also be a constant value.

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  176. Antti, which is why we focus on exchange-value in particular, and which we can generalize into a common measure (…and only then does it become meaningful to talk about price).

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  177. Johan, Nick says under his new blog post: "The exchange value vs use value distinction got sorted out in 1871 (do you know what I mean by that?)"

    Do you know what he means? Would you like to discuss it with him?

    It is not possible for us to disagree on exchange having something to do with value, and that the goods exchanged are not (hopefully) worthless. The records, too, have some meaning, and if there is a record that says that you are entitled to receive goods priced at SK100 without incurring a debt, then it has certain value to you -- but that value depends purely on what kind of goods are offered for sale at the price of SK100 (say, a pin or a pin-striped suit).

    I feel we are not arguing about the things we should be arguing about. What bugs me is that you stop far short in explaining the function of, say, a credit balance, if you are content with giving it what seems to you to be a descriptive name, for instance a "bearer of value" or a "general expression of exchange-value". The literature on money is full of that kind of expressions, probably hundreds of them.

    I, instead, give a concrete example of how the recordkeeping, as I see it, functions. I don't need to call a credit balance with any other name. I just try to explain what it in practice means for someone to have a credit balance on his account. You can call it an "embodiment of abstract value" if you like. I don't care. I call it a "credit balance", you call it whatever you like, and then we can discuss what it means to have it recorded on your account.

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  178. Antti, I would assume he refers to the marginalist counterattack on Marx by Jevons, Walras and Menger that same odd year. Nowadays we mainly talk about neoclassical economics as derived from that point onwards. Of course, marginalist ideas had been presented way before that but nobody really cared until after Marx's Capital. So there was an ideological component in there from the start. Sraffa criticized marginal utility theory heavily on many grounds from the 1930s onwards (its relying on ceteris paribus arguments as fictional substitutes; circular reasoning; etc.). In short: as subjective bunk. The debate flamed up, again, in the 1960s with the Cambridge Capital debates, especially around marginal productivity theory and the aggregate production function. Again, it was shown to be bunk. Samuelson, the main spokesman for the marginalists in Cambridge US eventually surrendered (i.e. the marginalists lost the debate)… then everyone forgot about the debate and mainstream continued as nothing had happened. So yeah, it was resolved, again, in the 1960s… by ignoring the problems in it.

    From Sraffa's notes: "Jevon's theory of utility: what does it really amount to? To this… that value depends upon utility and that utility is whatever affects value."

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  179. Antti wrote: << I feel we are not arguing about the things we should be arguing about. What bugs me is that you stop far short in explaining the function of, say, a credit balance… >>

    I have the feeling that what bugs you is the opposite: that I point to credit balances having a further meaning than what you originally gave them. But that's what I warned you about from the beginning (16.01.2017) "...that once those limits become explicit and enforceable, it might also change how we interpret the meaning of the record keeping..."

    Just to make it very simple: the mere fact that a given "gift" (an act of selling) is recorded at some price which by social convention means there's a right to receive a gift later on (an act of buying) immediately means that the recording itself may be interpreted as a store of value. That's a function which may or may not be independent from the original intent. But of course, it's not independent from the social context and from the continuing process of producing commodities offered for exchange. Without there being commodities for sale those credit notes or credit entries become worthless—they have no value what so ever (and more precisely: no exchange-value). But in so far as they have value, they can be interpreted in a far more independent way than as a mere record of the transaction giving rise to them.

    So even shorter: The genie is out of the bottle.

    How does this show? Well, for example, by way of making credit entries without direct reference to any commodity sold or bought, but still *that* act being *necessary* to buy something.

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  180. Thanks, Johan! But that debate doesn't really concern exchange value vs. price, does it?

    As far as I know, 'exchange value' is about what is often called 'relative price'. (I'm having a discussion with Nick, too, on 'price'.) If I'm selling apples and set a price of SK20 per kilo of apples, that SK20 is not a measure of exchange value (that is, a measure of relative price). It alone tells us nothing about exchange value.

    We can say that a good has an exchange value, but we don't measure it, we just state it (in terms of another good or a bundle of goods): a kilo of apples exchanges for two kilos of bananas.

    Now, when I set the price for my apples, I of course take into account what exchange value (in terms of other goods) that price implies for my apples. When we consider whether a certain price is acceptable or not, we consider the prices of other goods (or same good sold by someone else). And this comparison of a price to another price reveals us the exchange value; it is not a comparison of exchange values nor measures of exchange values.

    Where do we disagree?

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  181. Johan said: "that I point to credit balances having a further meaning than what you originally gave them"

    Should it surprise me that our ancestors have given them another meaning, which we have continued to strengthen, and so you can easily point out that they have a further meaning? Of course not. It is exactly that further meaning which I'm trying to get rid of in my theory, so that we could talk about the phenomena in new, simpler terms.

    I, too, could interpret a credit balance as a "store of value". I see nothing controversial in the idea that giving up goods/producing for others now will allow me to get something of value later. In that way I (metaphorically) store value for later.

    I don't see how our reading of the system would change the underlying logic of the system.

    If you face a credit limit (not be confused with 'credits'), be it at zero or minus SK1,000,000, you cannot get a purchase reported in the system. The community's, or its representatives', common risk tolerance towards you is met.

    If in this situation someone instructs a credit to your account and a debit to his, the administrator of the system doesn't know if you have sold some goods or not. Neither should he care about it. Either you have sold goods or then you have incurred a debt towards someone else (not the community as a whole). Or perhaps it was your mother who instructed the entries, effectively saying that let my son take goods and I will pay for it by giving up goods. You and the other person could very well both have negative balances, so this isn't any transfer of credit balances.

    What I'm saying is that the meaning we have previously given to those credit balances hasn't fully worked. That's why money remains an enigma. I have no doubt that you understand 'money' better than many of the "mainstream guys", but if you (or Sraffa, or anyone) understood money well enough, then many, obviously very intelligent mainstream guys would eventually too.

    I believe that we will never understand 'money' well enough. We will never agree on a definition for money. But we can get rid of the enigma by concluding that money doesn't exist. And that opens up a way to improved understanding of the "monetary system" and the economy as a whole.

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  182. It's here where we seem to disagree…

    Antti wrote: << But that debate doesn't really concern exchange value vs. price, does it? >>

    I think it's at the heart of it. This is the simplest example I could think of while walking from lunch: Any number (as in €10, €100, whatever | SK) on a credit note in my pocket is irrelevant unless it is socially recognized that it expresses exchange-value in the first place, in the sense that I can trade it for a commodity should the "numbers match". Here we're talking about the "acceptance-part" of the phenomenon.

    That’s the fundamental premise before we can talk about prices. Only when something having the property of expressing exchange-value (a general social attribute expressed in whichever way) may we concern ourselves of some standardized magnitude (price, a particular individual attribute of a commodity). That property is socially determined and can be expressed via different elements—paper, metal, electronic ledger, whatever…

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  183. Johan, please explain the same to us by using an example where you have a zero balance on your account and the seller of the commodity has a negative balance. What are the numbers that match in that case?

    I don't see how anything you say adds to what I say when I say that the credit balance expresses, if you will, the price of goods you are entitled to take from others without incurring a debt.

    It seems your idea of the credit balance expressing exchange-value rests on the assumption that the credit balance will be exchanged for something. In which case it is natural to give an example of using notes, and then just state that the logic extends to "pure accounting".

    Look at the words you use in your second paragraph: "...something having the property of expressing exchange-value (a general social attribute expressed in whichever way) may we concern ourselves of some standardized magnitude (price, a particular individual attribute of a commodity). That property is socially determined and can be expressed via different elements..."

    Can you understand if someone thinks that this explanation is not clear enough? That's language one would expect to be used when discussing something which is really, really hard to understand.

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  184. Understanding money |I think the problem is that the "mainstream" folks often want to model the economy in such a way that they are having trouble introducing money into their models. That's not necessary a failing in regards to understanding money. It could be their framework dictating how models should be built which has failed them.

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  185. Antti, it's all there in the first paragraph. The second one—the unclear one—is just an attempt to quickly formalize the former without making an essay of it.

    Of course the logic can be extended to "pure accounting" (paper notes are not magical in that respect)… It's the "genie being out"; and you (also) let it out full scale by nailing down the rules for the villagers together with explicit credit limits for everyone and independent manipulations of credit balances.

    There's nothing extraordinary about me having a zero balance and the seller a negative one. Whatever I buy will reduce the distance between my credit limit and any outstanding balance I have; that same number will be the one the seller is gaining, thus increasing his/her distance to the limit and reducing indebtedness to the same amount (might even go into positive territory). The number is the same as the price payed… SK10, for example. That's the backwards looking perspective à la Oliver.

    Now the forward looking: If my outstanding balance is insufficient to buy a house (say, SK500 lacking) and I get that, for example, from someone by direct account-manipulation, I have not gotten a price—that makes no sense—but yet I now have enough of a credit balance relative to the limit to satisfy the price asked for the house. Again, the genie is out. What is meant by credit balances expressing exchange-value in general is not that it denotes to any particular price; yet at the same time, if my credit balance relative to the limit is such that I can afford the house at some particular price, I can also afford any other commodity at that price or less. Nevertheless, I need not point out any specific other price within that vector… sufficient to say that that my credit balances express exchange-value as such and up to that particular magnitude. For the villagers the total magnitude of exchange-value so expressed is always explicitly shown. For the townsmen it's implicit, i.e., we must calculate it.

    Whenever the accounting practice allows negative balances there's two different points we can focus on. Starting from any outstanding balance: the distance to the limit (how much we can buy) and the distance from zero (debt relation). Whenever we have an accounting practice with no negative balances, we only have to focus on the distance to zero.

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  186. Johan, what you say about the "mainstream folks" sounds right to me. But we cannot say that outside mainstream models there is a broad agreement on the 'essence of money'? That is not even true of "outside mainstream".

    I think there's a lot of sense in what you say, also in the other thread about "debit-range". I think we can probably continue this discussion there.

    When it comes to "genie is out"... I think it mainly is because I offered you the 'money' you are used to see and think of. I never intended to keep it out (or keep the genie in), because my goal is to present an alternative interpretation of our real monetary system.

    Now I'd like this to be about me trying to present the alternative interpretation (itself a hard task), and get you to follow my thought despite your almost irresistible urge to see 'money' :-) Perhaps impossible?

    I won't leave the villagers credit-constrained as a group, nor will the townspeople have one general limit -- all individuals are subject to individual limits that vary from time to time, as in real life.

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  187. ...just think of money as a form of value and you'll be fine. ;-)

    The "essence" not explored in a positivist way but in a dialectical one.

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