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Lecture 4 Weighing Power & Authority: From Cattle to Bitcoin - Coggle…
Lecture 4 Weighing Power & Authority: From Cattle to Bitcoin
What is money? From ancient money to representative money
Definition
foncions: medium of exchange, unit fo account, store of value
2 types of money
commodity money: money gets its value from its underlying commodity
fiat money/credit money, debt: value institutionalized by law, the gov
General purpose money
allow conversion between different spheres
legal tender
Special purpose of money
wergild: payment as an award in Germanic societies
the Kula
Origins of money
"Money was no more ever invented than music or mathematics or jewelry. What we call money isn't a thing at all, it's a way of comparing things mathematically, as proportions." -
GRAEBER
money emerged as something different: barter & gift-giving were good but come issues
many currencies were linked to precious metals like gold (US stopping the gold standard system in
1971
)
the dollar became fiat money, meaning that it was no longer link to any commodity
the value of money depends of the amount in circulation (inflation/deflation mechanism)
The myth of barter (based on GRAEBER, HUMPHREY, INGHAM)
no society based on truck & barter was ever found by anthropologists
the origins of money do most likely not reside in the desire to exchange & swap things, but instead in the desire to sacrifice for the gods, to mitigate ins & guilt towards other (
GRAEBER
)
From religious money to first temple bureaucracies
temples and the grain chamber
in Mesopotamia: city state organized thanks to temples, the places where you go to pray but also where you put all your gains, protected by religious authority
Chartalism & KEYNES
chartalism = theory of money which argues that money originated with states' attempts to direct economic activity, fiat currency has value in exchange of sovereign power to levy taxes on economic activity
"State enforces the dictionary but also has the power to re-edit the dictionary"
KEYNES 1930
Scheme of money forms
money of account
= money in which debts & prices are expressed
acknowledgement of debt
= you can pay your debt with more debt
bank money
= credit money, debts are used as means of payment by banks
money proper
= defined by the state, answers to an acknowledgment of debt & can be used to pay it off
state money
= legal tender, the state can accept or exchange money into money proper
commodity money
= money with intrinsic value, corresponds to a thing that is scarce (metals, coins)
crypto-currencies
representative money
= money with and without intrinsic value (paper money), liked to the commodity money
fiat money
Societal dynamics
city states such as Athens but also Rome are organized around the class of debtors & creditors, of peasants & nobility
MOSES FINLEY
: in the ancient world, all revolutionary movements had a single program: "cancel the debts & redistribute the land"
All money is debt (& hence requires some form of authority)
first authority: religious
primordial debt: money as a debt to society (
GRAEBER, 2011
)
INGHAM
notes that the etymology for the world debt in Indo-European corresponds to "sin" or "guild" = religion
What is modern money? The creation of modern money
Foundation of the Bank of England in 1694
: when state & private money merged together, came with a constitutional change
integration of public currency & private credit
enable to join power & the ability to produce credit money
Bourgeoisie in Parliament wanted to have financial power over the King
State debt as foundation of credit money
the debt of the state are the basis of modern money creation
the central bank uses the debt of the state to create more money throughout the "money multiplying process" this works as long as the state is credible
KIM JONGCHUL (2012) Modern banking as a means of extracting war resources
the money was accepted as payment for tax obligations by the state
this money was also accepted as a means of payment by the common citizen
the war against France was won & the banking system was kept alive as a long-term project in England
the creditors want to have a check on what the King is doing with the money in order to be sure to be paying back
Bitcoins & other currencies
new form of private money
founded as a means to liberate from state & expansionary/inflationary tendencies of modern credit money
value in terms of other currencies not fixed
Money creation today
Modern distinctions
central bank money: created by central banks
notes & coins
reserves
bank money/scriptural money: created by commercial banks
how does the bank creates money? the Keynesian multiplier: I deposit my money at the bank & the banks lends 90% to somebody else
Money creation
from the money multiplier...
... to commercial bank money creation
Loanable funds theory
when a bank makes a credit, it does 2 things at the same moment (and these 2 things create money)
they are going to give me a liability, I owe them 1 million
at the same time, they give me 1 million
where does this 1 million comes from? a bank has the right to create money thanks to a bank license
so it's spending/credit that creates money. loans credit deposits & not the other way around
The secret of modern money creation
convention wisdom: savings creating deposits creating loans (loanable funds theory)
the creation of a deposit through a credit: when a bank grants a loan, she creates both a credit & a debit
The role of folk theories of money in monetary policies & their impact
Folk theories of money & their impact
Quantity theory of money
Price-species flow mechanism
Monetarism
Focus on (consumer-price) inflation
Modern Monetary Theory
The history of international monetary system & the EU
MUNDELL-FLEMING trilemma
Bimetallism (until 1871)
Gold standard (1871-1914)
Interwar period (1915-1944)
Bretton Woods (1945-1972)
Flexible exchange rate regimes (1973-present)
Readings
Historic use of money
Central banks
monopoly of the production of central bank money, including currency printing monopoly
hold the currency reserve
manage banking market liquidity
silver, golds, metals
coins since
6th century BC
by the
14th century
, gold was used for large transactions, silver for everyday use
coins for the payment of strangers
money is a social norm, it exists because we have accepted collectively of its existence and its worth
Current account
surplus
gold inflow
inflation
current account worsens
deficit
gold outlaw
deflation
current account improves