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Post by JP (admin) on Oct 24, 2017 17:30:11 GMT
Antti, feel free to post one last summary of the entire proceedings, but only if you have the time. So if we come back to things at some later point in time your ultimate response can serve as a quick hop-on point. I feel like I did mine at Oct 17, 2017 at 12:57pm. Oliver too.
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Post by Antti Jokinen on Oct 24, 2017 18:45:57 GMT
I'll get back to this later in the week (I was at the INET conference in Edinburgh until today -- Steve Keen was telling about how banks create deposits instead of lending out other people's deposits, so nothing new under the sun...)!
Oliver, I don't think it was drivel. But I'm afraid it might have been a bastard :-) Which you kind of recognized yourself, when you said that I could fill in, using my language. I think the language is inseparable from the theory.
JP, I'll try to come up with something smart.
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Post by oliver on Oct 25, 2017 15:57:12 GMT
I'll get back to this later in the week (I was at the INET conference in Edinburgh until today -- Steve Keen was telling about how banks create deposits instead of lending out other people's deposits, so nothing new under the sun...)! Oliver, I don't think it was drivel. But I'm afraid it might have been a bastard :-) Which you kind of recognized yourself, when you said that I could fill in, using my language. I think the language is inseparable from the theory. JP, I'll try to come up with something smart. Thanks, I was unsure about the bond rates and how they relate to interbank rates on 'reserves'. But that wasn't the question anyway. Quite frankly I couldn't think of anything beyond your answer to JP above: In conclusion one might say that there are two types of records. Those which record an actual change of hands of goods for 'merely' a record and those in which neither party parts with anything real. OMOs belong to the latter type. They are what I have referred to as records of records in that they can be netted to reveal the former. The former are those that are similar to LETS balances. The trillion dollar question in monetary economics seems to be: what effect do the latter have on the former and why?
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Post by Antti Jokinen on Oct 25, 2017 16:28:53 GMT
What I'm saying is that they should be conceptually separated. Whatever happens to the price level affects directly and proportionately the (real) value of the credit balance -- not vice versa. Prices are always raised or lowered by a seller, not by something that happens to credit balances (I don't know what can happen to them, other than that their quantity changes?). The historical episodes you are talking about are another thing. It is not what I mean by separation here. See my first blog post again. There's a UoA, skilo, in existence even before any monetary/LETS system is established. People express the prices of goods in that unit. Then they decide to start keeping skilo-denominated records of their trades (or "gifts", as in a gift economy). They don't call a SK1 credit balance 'a skilo' and they would be surprised if you suggested that they price their goods in those credit balances. They continue to price their goods in abstract skilos, just like they did before the LETS system. Yet, now that everyone, or nearly everyone, is using the LETS system, how could the sticker price differ from the amount of the credit entry the seller expects on his account? The whole point of the system being the recording of prices of goods bought and sold, how could the seller say that the price of his wares is SK10 but he demands a SK12 credit entry on his account? For all practical purposes this would mean that the price of his wares is SK12, not SK10. Of course, in case of stubborn individuals, it might help if there was a law (comparable to legal tender statutes) which stated that a seller, or a creditor, must accept a credit entry that matches the sticker price, and not more. That would guarantee that the sticker price and the credit entry won't diverge. Fast forward 7000 years and perhaps all this has been forgotten. People see that the SK1 credit entry (not balance) on the seller's account is always enough if one wants to buy goods priced at SK1, so they might start thinking that goods are somehow priced in these credit entries and not in an abstract skilo. Oliver, do you feel you see clearly what I mean when I say that goods are priced in an abstract dollar? That no matter if 100 % of monetary economists in the world say that 'a dollar' is a $1 Fed note or credit balance, and that goods are priced in those dollars (which serve both as the UoA and a MoE), we are justified in arguing that it might as well be otherwise? I'm asking because I think this is a crucial point to understand if one is to understand the description of the world I'm offering. And I don't see that JP has got his head around what exactly I mean here. Or has he -- what do you think? (See also this Twitter discussion from earlier today. I seem to have problems with getting my message through.)
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Post by Antti Jokinen on Oct 25, 2017 17:09:31 GMT
If we stay in the One Bank world, and look at things from the banker's point of view, then how could he tell a difference between a debit-credit instruction ("Debit Oliver's account with 100, credit JP's account with 100") where there is a transfer of real goods behind it and one without any transfer of real goods? Further, what if I today order a book from Amazon with 3-day delivery and my account gets debited already today? Then we can change the three days to three years and ask the same question. And what if Amazon is unable to deliver the book and instructs a credit on my account the following day -- records of records, or records of actual goods transactions? Another way to look at this is to conclude that the records are always records of goods transactions, but that people start to use them creatively to either overcome bank-imposed credit constraints or achieve a lower interest rate. This is not simple. It took me quite a long time to figure out how to describe these "records without actual goods changing hands", if I recall correctly.
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Post by oliver on Oct 26, 2017 8:21:29 GMT
What I'm saying is that they should be conceptually separated. Whatever happens to the price level affects directly and proportionately the (real) value of the credit balance -- not vice versa. Prices are always raised or lowered by a seller, not by something that happens to credit balances (I don't know what can happen to them, other than that their quantity changes?). The historical episodes you are talking about are another thing. It is not what I mean by separation here. See my first blog post again. There's a UoA, skilo, in existence even before any monetary/LETS system is established. People express the prices of goods in that unit. Then they decide to start keeping skilo-denominated records of their trades (or "gifts", as in a gift economy). They don't call a SK1 credit balance 'a skilo' and they would be surprised if you suggested that they price their goods in those credit balances. They continue to price their goods in abstract skilos, just like they did before the LETS system. Yet, now that everyone, or nearly everyone, is using the LETS system, how could the sticker price differ from the amount of the credit entry the seller expects on his account? The whole point of the system being the recording of prices of goods bought and sold, how could the seller say that the price of his wares is SK10 but he demands a SK12 credit entry on his account? For all practical purposes this would mean that the price of his wares is SK12, not SK10. Of course, in case of stubborn individuals, it might help if there was a law (comparable to legal tender statutes) which stated that a seller, or a creditor, must accept a credit entry that matches the sticker price, and not more. That would guarantee that the sticker price and the credit entry won't diverge. Fast forward 7000 years and perhaps all this has been forgotten. People see that the SK1 credit entry (not balance) on the seller's account is always enough if one wants to buy goods priced at SK1, so they might start thinking that goods are somehow priced in these credit entries and not in an abstract skilo. Oliver, do you feel you see clearly what I mean when I say that goods are priced in an abstract dollar? That no matter if 100 % of monetary economists in the world say that 'a dollar' is a $1 Fed note or credit balance, and that goods are priced in those dollars (which serve both as the UoA and a MoE), we are justified in arguing that it might as well be otherwise? I'm asking because I think this is a crucial point to understand if one is to understand the description of the world I'm offering. And I don't see that JP has got his head around what exactly I mean here. Or has he -- what do you think? (See also this Twitter discussion from earlier today. I seem to have problems with getting my message through.) Uhm, I can't say I thought of it that way before. But I think I understand your argument and why you're going there even if, for all practical purposes, there is no way to distinguish between the abstract dollar and the Fed credit balance nowadays (or ever?). The abstract unit gives primacy to those parties who initiate the transaction and lets them mutually define value along an abstract, numerical scale. All the bank does is to 'plausibilize' and then underwrite the transaction from the point of view of all its stakeholders. One could even go further and claim that the so-called 'unit of account' is actually not unitary at all. Sure, prices are expressed along a uniform scale. And one can imagine the value of one $ to be equal to the next. But I'm sure if you compare single transactions, the range of prices for comparable goods can be quite large. The unit of account is not only abstract, it is also highly subjective. This also shows in the difficulty we have in measuring an 'exact' inflation rate. In the end, a $ is just a word. There are certain rules that govern the use of that word (legal tender laws, e.g.), but it is the users of the word who define its meaning, not the authority that prints its name on paper bills or assigns it to bits and bytes.
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Post by oliver on Oct 26, 2017 11:12:04 GMT
If we stay in the One Bank world, and look at things from the banker's point of view, then how could he tell a difference between a debit-credit instruction ("Debit Oliver's account with 100, credit JP's account with 100") where there is a transfer of real goods behind it and one without any transfer of real goods? Further, what if I today order a book from Amazon with 3-day delivery and my account gets debited already today? Then we can change the three days to three years and ask the same question. And what if Amazon is unable to deliver the book and instructs a credit on my account the following day -- records of records, or records of actual goods transactions? Another way to look at this is to conclude that the records are always records of goods transactions, but that people start to use them creatively to either overcome bank-imposed credit constraints or achieve a lower interest rate. This is not simple. It took me quite a long time to figure out how to describe these "records without actual goods changing hands", if I recall correctly. I haven't thought this through. I suppose, unless one is talking about large loans for specific purposes, banks have no control over what is being traded by their customers. But if the authorities themselves have the choice of whether to engage in one type of transaction or the other (fiscal or monetary policy, one could call them), the case seems at least a bit clearer.
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Post by Antti Jokinen on Oct 26, 2017 19:19:21 GMT
... even if, for all practical purposes, there is no way to distinguish between the abstract dollar and the Fed credit balance nowadays (or ever?). I take the risk of being dismissed as a madman or a megalomaniac, and quote Wikipedia on Thomas Kuhn: As you say, there's probably no way to prove one of the views right. But I argue that if we assume an abstract dollar, then we can eventually solve many problems heretofore unsolved in economics. You said: I think you're onto what I mean, but let me try to put it in a slightly different way: On one hand we have a transaction, where a seller gives up goods (or promises to give up goods later) and a buyer receives goods (or is promised a goods delivery later). Not only that, but we also have a price agreed between the two parties for the said goods. This price is the closest we can get to a universal measure of the value of goods, so that we can compare different goods and say something about their relative value (which, no doubt, is subjective; apologies for any badly chosen words -- I'm not an economist). All this exists independently from any recordkeeping.On the other hand we have (LETS/bank) recordkeeping of these transactions. We record who was the seller and who was the buyer. We don't record the type or physical quantity of the goods, or the quality of services, but we try to record the value of the goods or services, as well as we can (which is not too well): we record the agreed price of the goods. I find this kind of world very simple. Elsewhere we find a world where the price of goods is expressed in some records, where a $1 credit balance in the CB ledger serves as the unit of account, where the price recorded refers to the records themselves. I find that world not so simple.
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Post by Antti Jokinen on Oct 26, 2017 19:25:38 GMT
... even if, for all practical purposes, there is no way to distinguish between the abstract dollar and the Fed credit balance nowadays (or ever?). I take the risk of being dismissed as a madman or a megalomaniac, and quote Wikipedia on Thomas Kuhn: As you say, there's probably no way to prove one of the views right. But I argue that if we assume an abstract dollar, then we can eventually solve many problems heretofore unsolved in economics. You said: I think you're onto what I mean, but let me try to put it in a slightly different way: On one hand we have a transaction, where a seller gives up goods (or promises to give up goods later) and a buyer receives goods (or is promised a goods delivery later). Not only that, but we also have a price agreed between the two parties for the said goods. This price is the closest we can get to a universal measure of the value of goods, so that we can compare different goods and say something about their relative value (which, no doubt, is subjective; apologies for any badly chosen words -- I'm not an economist). All this exists independently from any recordkeeping.
On the other hand we have (LETS/bank) recordkeeping of these transactions. We record who was the seller and who was the buyer. We don't record the type or physical quantity of the goods, or the quality of services, but we try to record the value of the goods or services, as well as we can (which is not too well): we record the agreed price of the goods. I find this kind of world very simple. Elsewhere we find a world where the price of goods is denominated in a record, where a $1 credit balance in the CB ledger serves as the unit of account, where the price recorded refers to the records themselves. I find that world not so simple.
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Post by oliver on Oct 27, 2017 10:50:49 GMT
All this exists independently from any recordkeeping. On the other hand we have (LETS/bank) recordkeeping of these transactions. We record who was the seller and who was the buyer. We don't record the type or physical quantity of the goods, or the quality of services, but we try to record the value of the goods or services, as well as we can (which is not too well): we record the agreed price of the goods. I find this kind of world very simple. Elsewhere we find a world where the price of goods is denominated in a record, where a $1 credit balance in the CB ledger serves as the unit of account, where the price recorded refers to the records themselves. I find that world not so simple. Yes, I agree with that. The records record the intersubjective value of the transaction. They are not to be mistaken for the value itself. That would be circular. A valid question is: who determines the price level? Can the CB define or at least influence what we, as customers and participants in transactions, take to be the equivalent of 1 unit of records in terms of real goods?
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Post by Antti Jokinen on Oct 27, 2017 13:36:41 GMT
A valid question is: who determines the price level? Can the CB define or at least influence what we, as customers and participants in transactions, take to be the equivalent of 1 unit of records in terms of real goods? My point is that we don't take anything to be "the equivalent of 1 unit of records". Your choice of words makes me think you might have missed what I really mean. We bid or ask a price, and adjustments to the records follow. Price level is determined by those who do the bidding and asking. The CB can influence this price setting. But it's a complicated process. Why did the seller raise his asking price and why did the buyer accept the higher price? There can be many reasons for this. Some of the reasons might have something to do with the actions of the central bank. None of the reasons are related to the records in any direct way. Take Weimar. Prices were rising and the government had to pay higher salaries, incurring debt. The records followed. Zero-interest records caused a problem.
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Post by oliver on Oct 27, 2017 18:06:39 GMT
A valid question is: who determines the price level? Can the CB define or at least influence what we, as customers and participants in transactions, take to be the equivalent of 1 unit of records in terms of real goods? My point is that we don't take anything to be "the equivalent of 1 unit of records". Your choice of words makes me think you might have missed what I really mean. We bid or ask a price, and adjustments to the records follow. Price level is determined by those who do the bidding and asking. The CB can influence this price setting. But it's a complicated process. Why did the seller raise his asking price and why did the buyer accept the higher price? There can be many reasons for this. Some of the reasons might have something to do with the actions of the central bank. None of the reasons are related to the records in any direct way. Take Weimar. Prices were rising and the government had to pay higher salaries, incurring debt. The records followed. Zero-interest records caused a problem. Are you saying higher interest rates would have saved Weimar?? But getting to you point: in deciding on a price, I the buyer and you the seller must each have some subjective opinion of a: what the object given / received is worth for us in terms of other available or potentially available objects. And b: how all those options translate along the shared scale called the unit of account (according to say past experience, observation of other trades and speculation about the future). It is after we have reached agreement on the price that the trade is recorded accordingly.
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Post by Antti Jokinen on Oct 27, 2017 19:25:05 GMT
Are you saying higher interest rates would have saved Weimar?? But getting to you point: in deciding on a price, I the buyer and you the seller must each have some subjective opinion of a: what the object given / received is worth for us in terms of other available or potentially available objects. And b: how all those options translate along the shared scale called the unit of account (according to say past experience, observation of other trades and speculation about the future). It is after we have reached agreement on the price that the trade is recorded accordingly. I knew I shouldn't have said anything about Weimar ;-) I don't think it would have saved Weimar (I leave it for another discussion why I don't think so). But it would be interesting to understand the dynamics in an economy where people use only checking accounts with, say, 100 % interest when inflation is running at, say, 120 % (pre-hyperinflation). No zero-interest currency. Less need to rush to buy goods, less shortages of "stores of value"? As JP would say, the hot potato effect would be very much diminished. And the CB would retain much more control over inflation, especially if Volcker was at the helm (leaving politics aside -- a crucial omission, I admit). I agree with you on your second paragraph. It's very much about looking at what others do, whether the prices of goods (incl. services, incl. labor) you buy and sell move. Speculation is also involved, as you say. I'll start a new thread on colonial currency, in hope of coming up with some new food for thought. We can keep this current thread going, too, and I'll add a summary later.
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Post by Antti Jokinen on Nov 6, 2017 21:54:33 GMT
Having read the whole discussion between Lonergan, JKH and our friend Oliver under this post of Lonergan's, I'm more convinced than ever that I can offer something that can break this deadlock. We don't need to come up with a new way to do accounting, as Lonergan suggests. We only need to come up with a new way to see accounting. We start with accepting that the one doing the accounting, the firm and its accountant/management, ultimately owns none of what we are used to call the firm's 'assets'. In case of 'real assets', the management is responsible for taking care of these things that belong to people who hold credits in the firm's books. Thus, we are justified in viewing the debit balances pertaining to the 'real assets' as the management's liabilities. When it comes to 'financial assets', these are obviously liabilities of the account-holders (like Oliver holding a mortgage account at a bank). So, the LHS of the firm's balance sheet has liabilities listed on it. This fits well with the fact that the accounts have deb(i)t balances. The RHS has assets listed on it. These are assets of the account-holders, as is the case with my "deposit" at my bank. The accounts have credit balances, and the word 'credit' is usually understood as something that is due to its holder. My asset, my credit, is not the bank's liability. The bank's liability is its property, plant and equipment, because those are goods it is obliged to give back to their rightful owners (credit-holders) one day. We can also say that the bank, i.e. its management *, is liable to make sure that it doesn't allow people to incur liabilities (like Oliver's mortgage) which they cannot fulfill. Oliver's liability, his debt, is not the bank's asset. Oliver pays his debt by delivering goods to someone else than the bank. Any interest on Oliver's mortgage is accruing to the parties on the RHS, not the bank/management. This language makes Lonergan more or less toothless. JKH and Oliver are, of course, right in that the accounting is correct. But the way we talk about the accounting, the way we view it, can be improved. * People often consider the firm as its shareholders, as if the shareholders were the ones who prepared the financial statements. Yet, double-entry bookkeeping, as far as I know, got its start in Genoa when a trustee, overseeing public assets, was excepted to keep accounts to increase transparency. Even today the management of a company is in a trustee position and is expected to prepare financial statements for the same reasons as back then: to decrease the opportunities for misuse/embezzlement by providing detailed information to the various stakeholders in a company, information which assists the stakeholders in their decision-making. Here's Wikipedia on "trustee": Here's some further reading on the question "Who owns a company?": John Kay and Andy Haldane.
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Post by Antti Jokinen on May 14, 2020 8:01:49 GMT
Antti, feel free to post one last summary of the entire proceedings, but only if you have the time. So if we come back to things at some later point in time your ultimate response can serve as a quick hop-on point. I feel like I did mine at Oct 17, 2017 at 12:57pm. Oliver too. JP, it took some time, but Oliver and I finally have a draft summary/paper ready See front page below. Just let me know if you would like to read the full paper. If you find the subject interesting enough to gift us with some of your - probably non-existing - spare time, we would be very grateful to receive some comments. Or, if you can't find the time, maybe you could point us to someone you feel could help us instead? (Nick Rowe is looking at it as we speak, and we have approached Carolyn Sissoko as well.) ----------------------------------------------------------------------------------------------------------------------------------------- A Suggestion for Simplifying the Theory of Exchange
The Capitol Hill Babysitting Cooperative revisited Antti Jokinen and Oliver Davey Abstract
We propose a new way of looking at transactions involving goods and money. Building on earlier work in which money is identified as a recordkeeping device or “memory”, we re-interpret the basic transaction—traditionally viewed as an exchange of goods and money—as a one-sided “gift” of goods that is recorded on a shared ledger. Money is no longer an object or “medium” that is exchanged. In fact, there is no recognizable concept of money in the theory we develop, yet all monetary phenomena, such as bank accounts and currency (tokens), remain intact and form the recordkeeping apparatus. This enables us to describe environments, which have hitherto been considered monetary, in terms of a pure credit economy. It also appears that this approach solves some common monetary puzzles.
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