2008-10-13

More thoughts on money

These thoughts and axioms arrived in the shower a few minutes ago:

  • Money is unique because it is both a unit of measurement and a commodity that is bought and sold.
  • Paradoxically, its role as a commodity ensures that it is an unreliable unit of measurement because its value is determined by the marketplace.
  • When the market devalues the price of money, it is experienced as inflation. While inflation has many causes, all forms of inflation involve money devaluation.
  • When the market revalues the price of money, it is experienced as deflation. While deflation has many causes, all forms of deflation involve money revaluation.
  • When there is neither inflation or deflation, the supply of money matches demand.
  • A central bank has a monopoly in money creation - no other organisation has the ability to supply money to the marketplace (commercial banks are merely one means by which the central bank supplies money to the marketplace)
  • While the market can determine the demand for money, central banks can ultimately determine supply.
  • Unlike most goods and services, money is infinitely fungible.
  • Central banks have the theoretical power to create an infinite amount of money if required.
  • Central banks also have the theoretical power to remove all money from the money supply.
  • It is theoretically possible for central banks to supply as much money, or as little money, as the market demands.
  • It is theoretically possible for the value of money to remain constant, given the power of central banks to increase or decrease supply in response to market demand.
  • The only time money can succeed as both a unit or measurement and a commodity that is bought and sold is if its value remains constant.
  • Absolute Price Stability (neither inflation nor deflation over the course of the business cycle - money remaining at a constant value) should therefore be the only reasonable monetary goal of central banks.
  • An economy running Absolute Price Stability should prevent endogenous economic shocks from occurring.
  • An open economy running Absolute Price Stability is still exposed to exogenous economic shocks.
  • A single unit of currency whose value remains constant should provide superior net economic results than a series of different and competing currencies whose values do not remain constant.
  • A single international currency and international central bank committed to Absolute Price Stability will be the first step in me conquering the world and making a one world government! mwa ha ha!! would be, um, good.

1 comment:

Eclipse Now said...

Don't you dare, I'M going to rule the world, do you hear? ME! (Runs sobbing for the peanut butter).