What is money?

6 Dec, 2012 at 13:23 | Posted in Economics | 15 Comments

As a young research stipendiate in the U.S. back in the 80s, yours truly had the great pleasure and privelege of having Hyman Minsky as teacher. He was a great inspiration at the time. He still is.

HymanMinskySince we live an a world of uncertain-ty and current views about the future affect capital-asset prices, the governor mecha-nism by way of financing terms is often dominated by positive, disequilibrating feedbacks … Because bankers live in the same expectational climate as businessmen, profit-seeking bankers will find ways of accommodating their customers; this behavior by bankes reinforces disequilibrating pressures …

Both the monatarist and standard Keynesian approaches assume that money can be identified quite independently of institutional usages. But in truth, what is money is determined by the workings of the economy, and usually there is a hierarchy of monies, with special money instruments for different purposes. Money not only arises in the process of financing, but an economy has a number of different types of money: everyone can create money; the problem is to get it accepted.

Hyman Minsky

As all students of economics know, time is limited. Given that, there has to be better ways to optimize its utilization than spending hours and hours working through or constructing irrelevant economic models. Instead of risking to just reinvent the wheel, I would rather recommend my students allocating their time also studying great forerunners like Keynes and Minsky, to help them constructing better, real and relevant economic models – models that really help us to explain and understand reality.


  1. Du kanske ska se på vad Andreas Cervenka skriver. Det låter schumpeterianskt så det förslår, det trodde jag inte om SvD:

    Men “Creditism” kommer från Richard Duncan, se nr 77 av New Left Review!
    Mats Bladh

    • Som vanligt mycket läsvärt från den pennan 🙂

  2. I’m not sure that fiat money deficit signals debt at all, or in any way. The deficit should be renamed, maybe just call it “private asset”.

    • Quite right. If the “national debt” was renamed “national savings”, all those Boehner headed Republicans would shut up.

  3. Lars Syl,

    Came to your blog via Mike Norman Economics. Glad I found it.


  4. That video goes wrong (at around 24.00) where it claims that interest cannot be repaid because only enough money has been lent into the economy to supply loans: not enough has been loaned out to pay interest as well.

    Taking the simple case where there is no net increase in commercial bank created money (which is approximately what has happened over the last two years), interest is simply a payment by the population to banks (and indeed non-bank creditors), and that money is recycled. Banks spend their income (i.e. interest) on staff costs, office building maintenance, computers, etc etc.

    Interest payment to banks are no different to payments to supermarkets for food, or to oil companies for fuel for cars. Assuming the money is recycled, there is no deflationary effect. Of course if someone HOARDS money, then there is a deflationary effect. That results in Keynsian paradox of thrift unemployment. But the latter has not specifically to do with banks.

  5. Love the quote. Having been a student of Minsky, which of his works do you recommend reading first?

    • Minsky’s most readable books are John Maynard Keynes (despite the title NOT a biography!) and Can ‘It’ Happen Again.

  6. Money is a means of communication.

    Once you have a global network of machines that can instantly connect need with output, want with with availability, money has outlived its relevance as a means of communicating “want”. With creditmoney you are merely communicating how much you are willing to work or sacrifice for a “want”. There is nothing that money bring to the table here, the convenience argument is no longer valid, currency is now an inconvenience, an extremly costly one at that, from a production point of view, we could work less, certainly bankers could work less.

    As for Banks and what they bring to the table. Everyone can be their own banker at home, via a software. In all their vital functions for society it has become embarrassingly obvious that they can be replaced by a software.

    Economist, you came into this world to facilitate exchange!

    • Great video. Highly recommended watching for those who need a primer on MMT 🙂

      • Is this video really a primer on MMT? MMT, according to wikipedia seems to be something rather different, i.e. a theory more fo fiat money, more than bank credit money.

        • Really, there are so many different “definitions” of MMT. Nowadays I usually tell people interested in this issue to read Randall Wray’s “Modern Money Theory” to get an accessible and coherent theoretical grip of what’s meant by MMT!

        • MMT mostly talks about state money, but also talks about bank credit money.

          Like it shows that banks make loans first, then find reserves. Rather than the other way around. Etc….

          Eventually, Steve Keen (emphasis on bank credit money) and MMT are going to work together, or so it’s been promised.

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