Many fanciful tales proceed from the definitions that economists have given to money. The most famous of these definitions being 1) a medium of exchange, 2) a store of value, and 3) a unit of account.
1. While money manifestly functions as a medium of exchange, this is mere observation without any kind of incisive identification. It is devoid of operational import until some specification is made of what money might be exchanged for, which then begs knowledge of prices that, absent a theory of economics exhibiting money’s operative significance, remain unknown.
2. When speaking of a currency’s value (hardly a rarity in economics) we tacitly express our awareness that money and value vary separately, and cannot therefore be of one substance.
3. Where ‘money’ is accepted as a mere unit of account, one finds assertions that money arose as a convenient, neutral way to ease the cumbersome processes of pure barter in the spot transactions of antique cultures. But barter, like straight lines and steady-states, is only another creature of the economist’s imagination. It’s persistence has no sustained counterpart in the archeological record, where it appears only briefly during the eclipse of high civilizations and the occasional, tentative interactions of otherwise hostile primitives.1Adam Smith had to confect historical apparitions of barter in order to account for the inception of money in the absence of governance; and this only because he willed that economies were to appear as self-contained systems entitled to a science of their own.2 We therefore regard barter as the artifact of a certain analytic viewpoint.
Unfortunately this point of view has also imposed equilibrium on economic analysis, and equilibrium is indeed a situation where mere barter is entirely sufficient. Why would we need to exchange money unless it were to account for changes in the rates of flow in physical commodities? If the same physical flows are always occurring at the same prices, then the same amounts of money are always changing hands — in which case money, having become operationally redundant, would fall out of use.
In sum, money’s current meanings only serve economic science as devices by which the subject is simplified to views of material states while they are steady — which of course they never are. More satisfying definitions are challenging because money’s significance is only seen when operating to express desired changes in the quanta of objectively useful things.
SFEcon addresses this challenge by representing the physical dynamics of economic adjustment through its instructional emulators. Monetary flows arise from physical transactions occurring at stated prices. These flows continuously accumulate in monetary aggregates which then feed back into price calculations (which also reference the system’s physical state and its parameters). Prices are then shown as pointing toward the optimal physical states that we presume are the vital controlling reference of economic dynamics.
While our dynamic emulators impose their own sort of simplicity on economic reality in order to accomplish their instructional purposes, the simplicity of equilibrium is absent. These physical analogs present their behaviors for our inspection, but they cannot verbalize what they do. Stories about the analogs are therefore needed for instructional completeness. We proceed in the hope our stories will be not only novel, but also wiser than others for their being grounded in a view of economics that can be realized in a formal mathematical analog.
The ultimate moral of SFEcon’s monetary fables will be that human iniquity is not to be overcome by monetary policy, and that fantasies to the contrary are therefore only advanced by doctrinaire people in order to advance a doctrine. Thus we enter into conflict with both gold bugs and monetary cranks, together with their respective stories of how control of the money supply is thought to deliver us from the evils of this world:
In one story, money is a share of something than can only exist in a quantity that is, by its inherent nature, rather difficult to alter. Gold has been historically serviceable in this role.
In the other story, money is an inherently worthless token. And because the quantity of worthless things can be augmented or reduced without economic activity, the license the do so is necessarily limited to a presumably benign, but most assuredly powerful, central authority._____________________