Ozark Trail Folding Knife

Surprise! Now the crisis is the fault of the commodity money!

** The post was changed from its original version **

On Sun 24 hours a few days ago , was presented the book by two professors at the University Bocconi Milan, Massimo Amato, Luca Fantacci, called "The End of Finance." This book aims to explain, in the wake of what Keynes argued, the reasons for the financial crisis and to propose a series of remedies to prevent future there are others.

The thesis that emerges from the interview, but not necessarily be true to what is contained in the book, they might shudder, mindful, who follows the Austrian school of economics, but since the two professors say they follow the wake of Keynes can be interesting (and funny) to see if they actually followed the British economist thought or if they have misrepresented entire contents.

Let's see first what is, and Amato Fantacci, the structural cause of the crisis.

"The real crux - says Amato - was changing the very function of finance . The latter, broadly speaking, covers the opening of a credit to a person cui viene anticipato del denaro per sviluppare, ad esempio, un'impresa. Una funzione essenziale per l'economia reale che presuppone, prima o poi, la chiusura del credito stesso». Non è un caso, quindi, che nel latino del tardo impero " Finantia " significasse «definizione amichevole di una controversia».

« È il "pagherò " della cambiale - fa notare Fantacci-, che, tuttavia, nel mercato finanziario si è trasformato in un "pagherò mai" » [..]«Grazie a tecniche come la cartolarizzazione, il creditore e il debitore sono stati "allontanati", non c'è più una relazione personale tra loro. È stato volutamente interrotto, split ratio between the two parties. In this way, the debtor could not only delay payment, but postpone it indefinitely: the promissory note was, in fact, turned into a "will ever pay." A revolution is not only economic but, dare I say, anthropology. " But how was it possible to go that far? "It's pretty easy to understand - Fantacci answers - Debt, maybe subprime mortgages, has been transformed, thanks to the unpacking of securitization, in something desirable so appealing. A title the more required as "thrown" into the river of cash which, by its very nature, needs to find a remuneration , possibly sempre maggiore».

Non è affatto semplice riuscire a capire il pensiero di Amato e Fantacci. Viene infatti detto che:

- la finanza odierna si basa su debiti che non verranno mai pagati nella loro interezza

- la cartolarizzazione dei debiti ha separato debitori e creditori per cui questi ultimi non conoscono chi ha preso in prestito i loro soldi

- c’è un enorme fiume di liquidità looking for a return

- all debts, including subprime ones, are now appealing

But what is the causal order? What do you mean by "river of cash" and who created it? There were consequences in the real economy (we are talking only of finance) or not? Why the crisis arose at some point? In the interview not be explained.

It only states that

According to this, therefore, liquidity is one of the problems underlying the crisis ...

School Austrian of Economics also offers a thorough explanation of why a credit boom then leads to a crisis and what is the role of "liquidity". But Beloved Fantacci and what "liquidity"?

"Yes. The liquidity, meaning continuous convertibility of currency and vice versa in a title, is the structural basis for this system "

Within two periods have gone from" cash "intended as a" river of cash "to" cash "as" ability to quickly convert an asset into cash financial ". It seems to me therefore that the idea of \u200b\u200bAmato and Fantacci is more or less this:

In recent years there has been a huge increase in the indebtedness of households and businesses. Once, when two people stipulated a bill of exchange, the lender remained in possession of the title to maturity, when the debt was refunded. Now the financial markets make it possible to package and resell the debt and they are so attractive to be sold (converted into money) very quickly in the market, changing hands many times.

However, when increases in liquidity preference and many want to convert their assets into cash, the stock price goes down (so they will raise the interest rate) and onset of the crisis. This explanation is, in some ways, the interpretation of Keynesian thought given by Krugman , but Keynes's ideas had a little 'different about the causes of the economic cycle (General Theory, Chapter 22)

" Now, we have been used to explain the crisis to emphasize the trend of the interest rate to rise under the influence of increased demand for money or as an intermediary in trade for speculative reasons. Sometimes this factor may certainly play an aggravating and perhaps occasional spark. But I suggest that a more typical and often dominant explanation of the crisis lies in the increase in the rate of interest but in the sudden collapse of the marginal efficiency of capital "

But

the "liquidity" alone was not sufficient without the role of money as a store of value "

" The money intended as a store of value-meets Fantacci -. Com is known, the currency is now: unit of account, medium of exchange and, precisely, a store of value. Here, the latter feature is essential in the financial market: money be a commodity whose price is the interest rate . If there were those who give money this aspect should not, or could be paid with the interest rates, precisely ".

According to Amato and Fantacci money today would be a "commodity money whose price is the rate of interest" and that due to the fact that the money is "a store of value." Apart from the assertion that money today is a "commodity money" (a coin of legal tender paper can be a commodity money?) Is worth commenting on the absurd argument that "the interest rate is the price of money ", which derives from a misinterpretation of what is written by Keynes in the General Theory.

In Chapter XIII, entitled "The general theory of interest rate" Keynes declares that the individual, when it had a net income, is facing a double decision:

" The time preferences of an individual require two distinct decision points to be completed . The first relates to the aspect of time preference, which I call the propensity to consumption, which determines how much each person consumes and how much of your income in some form will be held in reserve and allocated to future consumption.

But having made this decision, there is one further che lo attende, ovvero, in quale forma detenere questo “diritto ad un consumo futuro” che si è riservato, sia che esso provenga dal suo reddito corrente o dai suoi risparmi passati. Vuole tenerlo sotto forma liquida (es. moneta o un suo equivalente)? Oppure è preparato a separarsi di questo suo diritto per un periodo specifico o indefinito, lasciando che siano le condizioni future di mercato a determinare in quali termini potrà, se necessario, convertire questo diritto a consumi futuri in immediata possibilità di consumo in generale ? »

E quindi: il tasso di interesse, per Keynes, è la ricompensa per separarsi dalla liquidità for a given period, which is the opportunity cost of holding money in liquid form.

E 'Amato and Fantacci say what? No, and in fact after Keynes wrote,

The interest rate is nothing more than the inverse proportion between a sum of money and how much can be gained by splitting for a certain period of time in exchange for a debt .

must be careful not to confuse "opportunity cost" con “prezzo” in quanto se è vero che per prestare moneta (e percepire un interesse) l’individuo deve separarsene per un certo periodo, tuttavia la cessione della proprietà delle moneta non è definitiva. Allo stesso modo se affitto una casa ne cedo la proprietà per la durata del contratto ma nessuno si sognerebbe di affermare che l’affitto costituisce il prezzo della casa!

Poco più avanti Amato afferma:

« La prova si è avuta quando le banche centrali hanno inondato il mercato con "denaro frusciante". Ebbene, se fossero prevalse le caratteristiche di unità di conto and a medium of exchange, the currency would be circulated among the financial institutions. Instead, banks have hoarded liquidity. They considered a commodity, have put it "in stock", bearing in mind the essential function of store of value "

It refers to the fact that when the Fed , by last October, has flooded the banks money, they have increased their reserves with the Federal Reserve instead of "circulate money in the credit market." According to Amato, this is because the nature of a "store of value" of Money has prevailed on the characteristics of a medium of exchange and unit of account. "

Who here Amato Fantacci and Keynes have abandoned to his fate and are following a different path and now beyond doubt. Keynes, to describe this situation, would in fact talking about a liquidity trap (General Theory, Chapter XV)

" There is a possibility that after the interest rate has dropped to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers cash over to a debt offering an interest rate so low. In this event the monetary authority would have lost effective control of the interest rate. "

In this case the solution is not Keynes' attempt to circumvent the store of value of money" but

« Se questa situazione dovesse manifestarsi questo comporterebbe che l’autorità pubblica potrebbe prendere in prestito in maniera illimitata dal sistema bancario al tasso di interesse nominale. »

Detta in parole povere: se la politica monetaria non è efficace allora deve intervenire l’autorità pubblica per colmare il gap di output produttivo e ristabilire la piena occupazione.

Invece per Fantacci ed Amato la soluzione è

«eliminare the commodity money, so that the banks will return to focus on what should be their own core business, that is carrying on the business of brokering loans in the world to ensure the real economy. "

and eliminate money from the characteristic of "store of value" while maintaining its function as a medium of exchange and unit of account.

This idea, which sadly has many supporters, is based on the assumption that money is nothing more than a lubricant of trade and that these occur when it disappears and what remains is only an exchange of goods and services. Here is an example.

Gino's pizza on a freshly baked pizza and want to buy a beer. In a barter economy should look for someone who has the beer and is willing to exchange it with pizza in a cash economy but the whole is much simpler:

Gino sells pizza with George (who want) to € 4 and then went to the bar where he used to buy the 4 € a bottle of beer. At the end of trade in the currency disappears as soon as Gino had the pizza and now has a beer.

It 'really? Absolutely not!

It has not gone any € during transactions (before George had 4 € and now they have the bartender)! Indeed, as Mises wrote, is not correct to talk about money "in circulation" because any time all currency is in your wallet or on behalf of someone.

The fact that individuals agree to exchange goods for money (and therefore the money is a medium of exchange) is because they know that in the future will be able to use that money to get other goods (and here is the function of store of value). If this expectation ceases, because monetary authorities such as the hyperinflationary currency destroying its value, then individuals will try to get rid of money at their disposal to buy real assets (as has happened in Weimar , Zimbabwe, etc..) And this' Last also cease to be a medium of exchange.

And this is more or less the same objection that Keynes, while sharing the principles, Gesell was the idea of \u200b\u200b"making the cost of hoarding money" (General Theory, Chapter 23)

" In particular [Gesell] did not know that money is not the only thing to keep a liquidity premium, different from other goods only for its size, and derives its importance to the fact of having the largest liquidity premium compared to other items. So if the notes were deprived of their liquidity premium, a long series of substitutes, it would have taken the place " (eg gold, foreign currency, precious metals)

So even Keynes, even wanting to cause "the euthanasia of the rentier" and "abolish scarcity di capitale» (Teoria Generale, Cap. 22) non si sarebbe mai sognato di suggerire di privare la moneta della sua funzione di riserva di valore!

Ma quanti sono i keynesiani, che magari insegnano economia all’università, a non avere mai letto, né capito, Keynes?