Money is the general medium of exchange, the thing that all other goods and services are traded for, the final payment for such goods and services on the market. – Rothbard
It becomes readily apparently that Vox has decided to very politely insult me. Curious.. Cruelty artists are not often known for their subtlety. Regardless... insult it is. That is what you call it when a skilled opponent opens up a chess match by going for a 3 move check mate. The insinuation is you may fall for it.
Well thanks mate... Why didn't ya just accuse me of licking the window of the short bus all the way to the Midvail Academy of the Mentally Challenged?
You may be wondering what all of this maneuvering is about. If you’ve read Return of the Great Depression (and you should dammit) you know that Vox’s depressionist case is based on debt disappearing. All is not totally lost for him if debt doesn’t count as money… but it complicates matters for him considerably. If he can just show that debt is money and debt is disappearing… then he is in very good shape indeed. If he can’t show debt is money… he can still make an effective case… it is just harder.
Ever the war gamer… Vox is trying to take the high ground. He knows it doesn’t win him the battle… but this amounts to Getting There First with the Most.
I hope it does not surprise the reader when I wholly reject Vox’s proposed question… as he has deliberately chosen two descriptions of money, both of which allow him to demonstrate that debt can be money in those terms. No matter which I choose… Vox can make a very logically sound case that debt meets all the qualifications…. And thus… is money. Heads Vox wins. Tails I lose.
Now I’m going to tell you what Vox left out… and I suspect he did so deliberately. I mean… honestly we’re talking about Vox Day here. The man has been known to walk around with a Mises Institute hat over his Mohawk. I wouldn't be surprised to learn that Rothbard quotes occasionally appear in his stool. Do you really believe he doesn’t know what everyone from Bastiat to Hayek said about money? Vox knows damned well that the definition I used for money was straight from Mises. I can throw Rothbard and Mises quotes at you all day that back up my insistence that money completes a transaction... and so can Vox.
Making matters somewhat more frustrating… Vox quotes Salerno. Let’s see what Mr Salerno said about credit that Vox has conveniently omitted.
Credit cards [should] not [be] counted as part of the [money supply] because use of a credit card in the purchase of a good does not fully discharge the debt created in the transaction. Instead, it gives rise to a second credit transaction that involves present and future monetary payments. Thus the issuer of the credit card or lender is now bound to pay the seller of the good immediately with money on behalf of the card-holder or borrower. The latter, in turn, is obliged to make a monetary repayment of the loan to the issuer at the end of the month or at a later date, at which time the transaction is finally completed.
I'm just gonna let that sink in for a bit here...
Ya got it? I can wait... read it again if you have to.
Note that no where in either of Vox’s proposed definitions do we find this critical factor. Turgot omits it. Law omits it. Mises, Rothbard, Salerno.. and pretty much every other Austrian has agreed that the key factor of money is the fact that it completes a transaction. Completing a transaction is the one thing that money does, that nothing else does.
In the interest of charity and goodwill… I will suggest that Turgot’s characteristics of money are all fine with me… provided that we remember that the value supposedly stored by the money is subjective, and, we add the requirement that I have hither-to beaten into the ground. It must serve to complete the transaction. Law on the other hand can pucker up and kiss my whole ass.
So given my Austrian definition of money… what IS the bloody money supply? Ludwig Von Mises said it was “Money + Money Substitutes”. HA HA! Says you. Vox has you! Money Substitutes! That’s credit!
Since we’re talking Austrian Economics we must look at what characteristics Austrians use to determine what is or is not a money substitute. Here are the characteristics… Per… Well… Everyone that matters:
It must have recognizable par value claims with standard money
So… given those once again… I can see the wheels turning from here… you’re thinking Vox has me. Credit Cards are money substitutes! Right? After all one could argue that they are even more readily convertible than money in checking and savings accounts. They are certainly recognized as par value claims with standard money.
Mr Salerno already explained why we shouldn’t count them… and I would add a couple of points… One… I don’t think Vox wants to go down this road given that average credit card debt is up 5% from November of 2011 to December of 2012. (credit to josh for pointing out that I left out the word "average" in the first post. Total credit card debt is down due to default.) That doesn’t much help his case. On top of that…The point is that credit card money didn’t exist before that purchase, or it only existed in some form that isn’t even remotely related to actual money and had to be converted into money in order to become available for use. That is to say, some bank had to sell something to get the money. Hell if we're going down that road we may as well call cars money, because you can sell them, get money, then use the money to buy something. If we do this... we've basically just mentally masturbated ourselves into oblivion. That's never good. Ask Friedrich Nietzsche.
Now... Compare money available on the credit card to money in a savings account… which at some point… was either actual cash, or was in some checking account somewhere. The depositor still owns the money and has effectively unlimited access to the money. Legally there are things banks can do to limit the access but in practical terms it doesn't actually happen. Still because of those limits at least one Austrian economist, Frank Shostak, argues that even money in savings accounts isn't in the money supply.
Look... Given that we can debate the merit of money in savings accounts don’t you suppose it’s a bit daft to ask us then if we think a derivative is money? We can't agree that cash you stick in a savings account is money... but you want to ask us if the money someone may think your house may be worth if you maybe possibly sold it... is?
So once the credit card is used… the money for the purchase price then goes into a checking account of some seller somewhere… and that money is now in the money supply. Before that it was not. I want to make sure we're clear on this. The principle of loan... the money the bank uses for the purchase... or the proceeds the bank gives the borrower... that money counts in the money supply. The corresponding debt does not. That debt is nothing more than a banker's bet that he will get paid. Its accounts receivable .. no different than the accounts receivable of any other business.
Beyond all of this I will attempt to take one tiny baby step forward. What is in the money supply? M2 is close but it negates some very important factors. Instead I personally prefer Micheal Pollaro’s TMS1 and TMS2 metrics.
These metrics can be tracked here. I should note that none of these are perfect... and we can debate at length about what should or should not be included in them. I prefer TMS2... but if you want to go with M2... that's fine with me.
M3 however... is right out. After all... M3's additions are entirely credit transactions. Its like a giant banker circle jerk at The Casino of the Damned. No way.
I do believe when you view the various charts provided you will agree that deflation would look quite a bit different. What we see here is a massive increase of supply across the board.
As such… I suppose I will pose a question to Vox.
True of False: Lots of things store value. Lots of things can be used to estimate value. Lots of things can be employed to aid in an exchange. Money does all of those things. But money is the only thing that does all of those things, and completes an exchange without creating a need for another transaction.