This is utterly brilliant:
Twitter / izakaminska: Why equity is a type of privately issued currency
Steve Randy Waldman has been here before, with the idea that currency issued by government (ultimately through deficit spending) is “equity” in government, or in America. But this reverses it beautifully, with the notion that private equity issuance is also currency issuance. Google stock is currency.
I won’t recap the argument here; you really need to read it. Just some thoughts:
I think different words might help make it clearer. I would say that there are many units of exchange in the world — dollar bills, t-bills, stock shares, etc. Financial assets. They have various characteristics, a key one being limits on what they can be exchanged for. In general when we say “currency” we mean physical tokens that can be exchanged for (small quantities of) real goods. But we confuse things by not realizing that “currency” is a somewhat vaguely defined subset of “units of exchange.”
(Key distinction: the “units” I’m talking about are not measurement units like inches, degrees, or “the dollar” — units of account. Rather, in the sense of discrete units, chunks. As when a factory produces a certain number of units, which can have their value described relative to a unit of measurement/account, such as the dollar. More on the distinction between “unit” and “medium” of account/exchange here.)
You can’t buy a car or a government bond with quarters. So are quarters currency? Likewise, you can’t buy a pack of gum with a treasury bond — but you can use it to buy Fed reserves (if you’re a bank). Is the bond currency? You decide. But both quarters and bonds (and Google shares) are units of exchange. (This is why I’m still struggling with JP Konig’s “moneyness” concept: it seems to hinge on a single axis of “liquidity,” when in fact different units of exchange are differently liquid.)
We can also call these units of exchange “financial assets.”
I do not define a “bushel of apples” as a unit of exchange or a financial asset, but as a unit of commodity. Ditto an ounce of gold. Because in my definition:
1. Units of exchange/financial assets cannot be consumed by humans to produce human utility, and
2. Their creation requires no (or vanishingly little) input to production.
Returning to a previous (excessively long) post, these units of exchange/financial assets embody exchange value — money. Hence (alert: precise definition here) money is exchange value as embodied in financial assets. Money does not, cannot exist, absent such embodiment. A bushel of apples does not embody money: That bushel has exchange value, but the value is not embodied in non-consumable, only-exchangeable form.
Not sure how much this will help others, but it’s working for me.
Cross posted at Angry Bear.
Comments
3 responses to “Currency is Equity, Equity is Currency”
“This is why I’m still struggling with JP Konig’s “moneyness†concept: it seems to hinge on a single axis of “liquidity,†when in fact different units of exchange are differently liquid.”
Yes, I’ve been struggling with that one too.
Although you can say the same thing about consumption goods — they are are “differently consumable”. Say, salami vs a painting. Yet we can still arrive at consumption preferences and eventually prices for slices of salami and paintings.
So although different goods provide different types of liquidity, my feeling is that we should still be able to back out a price for that particular good’s liquidity services — and then we can compare liquidity across all assets.
@JP Koning “we should still be able to back out a price for that particular good’s liquidity services — and then we can compare liquidity across all assets”
Okay, but: a given financial asset (FA)/unit of exchange (UOE) has different liquidities relative to various other UOEs. And those can change in different amounts and even different directions. It seems like it would require a vexingly difficult netting out to arrive at a single liquidity value for a UOE.
Just to add: your thinking is cutting right to the crux, but I’m not liking the “moneyness” usage.
It’s trying to describe something (basically, liquidity) using a word that’s horribly ambiguous. There’s no consensus on what money is, much less moneyness. So replacing “liqudity” with “moneyness” makes it harder for people to understand, not easier.
Also is it circular definition? The thing that makes something money is its liquidity, and the thing that make something liquid is its moneyness? If we’ve got the word “liquidity,” why do we need another word — “moneyness” — for the same thing?
How do you like my definition of money? Exchange value as embodied in financial assets. Does discussing FAs/UOEs — all of whichembody money — in terms of their various characteristics and the value they provide, help cut the gordian conceptual knot?
@Asymptosis
Liquidity and moneyness are pretty much synonymous. I like to use the word moneyness because it reinforces the idea that one needn’t approach monetary phenomena from a reference point that beings with some unique asset/good called “money”.
So I’m cheating a bit by not engaging in the centuries’ long attempt to define money as some object x or set of objects y that cross some threshold z. Your definition of money and the threshold you’ve chosen could be good ones, but that’s a different game than the one I’m playing.
I’ve been defining moneyness as the extra value people place on some good or asset because it can be exchanged. This extra value is a feature of all valued goods/assets. How do we measure this quality? What happens when we strip out moneyness? Can we sell it off? etc.
“It seems like it would require a vexingly difficult netting out to arrive at a single liquidity value for a UOE.”
Yes. This is difficult. Will have a post sometime next month that touches on this.