Usually money has been defined to have three properties:
- medium of exchange
- unit of account
- store of value
In the recent years I've started to question if it's really necessary to have all these three features in the same thing. What if the economy had two or three different things that had one or two these properties?
Maybe even more? Who says that everyone has to use the same thing for the store of value or unit of account?
Good question. There is a school of thought that says that it is impossible in the long term for anything (even, or especially, gold) to serve as both medium of exchange (MoE) and store of value (SoV) at the same time. The reason is that governments (all types) eventually spend more than they take in, so that they need to inflate the currency.
Thank you for this first installment. I look forward to reading further developments, wherein additional social/economic functions of money (store of value, unit of account) are discussed.
Just as Keynes saw a connection between Yap stones and gold reserves, he too must have been struck by how the money-concept was sufficiently ingrained in Yap society that whatever method was used to keep accounts straight (possibly just collective memory), it was a social good, as much as a common language is a social good for a society. But unlike a common language, the Yap money system requires a certain level of social trust, in the sense of what some now refer to as 'high-trust' and 'low-trust' societies.
If Yap society had seen a substantial influx of non-Yaps, I suspect that the stone-money system would have been confined to native Yaps, or may have disappeared altogether as the level of social trust declined.
Countries like Finland and Japan must be among the highest-trust societies, which makes them among the nicest places to live. I wonder how the coming crisis will change the overall social trust of the countries it affects.
This is a very good point. Thanks for bringing it up.
I have to re-check the "clearing" in Yap, but trust has always been a key feature with money. Trust to the institutions, trust to the currenty and trust to the people. There are some great examples of clearing houses (like pubs) in history.
Usually money has been defined to have three properties:
- medium of exchange
- unit of account
- store of value
In the recent years I've started to question if it's really necessary to have all these three features in the same thing. What if the economy had two or three different things that had one or two these properties?
Maybe even more? Who says that everyone has to use the same thing for the store of value or unit of account?
Good question. There is a school of thought that says that it is impossible in the long term for anything (even, or especially, gold) to serve as both medium of exchange (MoE) and store of value (SoV) at the same time. The reason is that governments (all types) eventually spend more than they take in, so that they need to inflate the currency.
You may be interested in the site
https://fofoa.blogspot.com/
which has explored this thesis, and its implications, in great detail since around 2009.
Hi Samuli,
Yeah, me too, kind of. I will explore these in detail in the book.
Thank you for this first installment. I look forward to reading further developments, wherein additional social/economic functions of money (store of value, unit of account) are discussed.
Just as Keynes saw a connection between Yap stones and gold reserves, he too must have been struck by how the money-concept was sufficiently ingrained in Yap society that whatever method was used to keep accounts straight (possibly just collective memory), it was a social good, as much as a common language is a social good for a society. But unlike a common language, the Yap money system requires a certain level of social trust, in the sense of what some now refer to as 'high-trust' and 'low-trust' societies.
If Yap society had seen a substantial influx of non-Yaps, I suspect that the stone-money system would have been confined to native Yaps, or may have disappeared altogether as the level of social trust declined.
Countries like Finland and Japan must be among the highest-trust societies, which makes them among the nicest places to live. I wonder how the coming crisis will change the overall social trust of the countries it affects.
Hi,
This is a very good point. Thanks for bringing it up.
I have to re-check the "clearing" in Yap, but trust has always been a key feature with money. Trust to the institutions, trust to the currenty and trust to the people. There are some great examples of clearing houses (like pubs) in history.
I have a self directed trading account with a major North American Bank. It is currently composed of the following assets denoted in Canadian dollars:
Cash: $1,000,000 Canadian dollars in a money market fund
Common Stocks: Oil and gas Company common shares currently valued at approximately $1,000,000
Canadian and US government bonds valued at approximately $1,000, 000.
Can anyone estimate what these assets might be worth 1 year after the predicted crash?