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>* Does anyone actually understand how money works, or are people trying to rationalize what we already have? I would say, no.. considering the divergence of e

>* Does anyone actually understand how money works, or are people trying to rationalize what we already have? I would say, no.. considering the divergence of expert opinions. Limited consensus have formed around high profile economists (eg Keynes, Friedman) but generally erodes as history throws up new examples that don't fit neatly into popular theories. Monetarism is still the working understanding behind most central banking, but japanese staglation and later events (arguably including the current covid economy) have demoted it from "a theory of the truth about money" to "a method of doing central banking." I do think that since pure fiat currency became the norm in the 70s, our understanding of money has improved. We are forced to conclude that "the truth about money" can only be found in financial systems, because there is nothing else anymore. It's not really a question academics are trying to answer, atm. One reason is that trying to answer "what is money" is associated with all sorts of ideological quackery with a bad reputation. Another reason is that high prestige economics deals with a more pertinent question: "what should central banks and regulator do." The economist who answers this question becomes the next JM Keynes or M Friedman. At the least, he becomes a central bank governor. This limits the field of search to stuff a central bank can do. Economic understandings are also generally curbed by what can be measured, and this also limits the field of search. > * All that really matters (to me) is the value is relatively stable and it doesn't create a crazy imbalance of power. > * Money does an okay job maintaining a stable value for some stuff (e.g. food), but an incredibly lousy job for other stuff (e.g. land). These are not universally agreed to be products of monetary systems. Stability is, under the current theories used by central banks (mostly monetarism) but the others are explicitly "out of theory."

zajio1am 6y ago
> I would say, no.. considering the divergence of expert opinions. I would disagree and think it needs more details. There is difference between just 'how money works' and 'how economy works'. The first question 'how money works' is mostly just insitutional and legal knowledge of existing processes of central and commercial banks. OTOH, 'how economy works' is empirical field of knowledge about complex emergent phenomenon - the economy, and contains questions like how would economy reacts on specific monetary policies. That is what macroeconomic theories like keyensianism and monetarism are about.
- dalbasal 6y ago
  Keyensianism and monetarism are essentially "how money works." Microeconomics is "how the economy works," and while there are still divergent opinions, there's stability in that divergence. Ricardo is still foundational when it comes to trade, for example. The premise of macroeconomics is that how money works is different to that. That started with keynes, and continues through keynesianism. Monetarism literally refers to "a theory of money." The point is that it isn't mostly just institutional and legal knowledge of existing processes of central and commercial banks. Those things regulate and affect money, but how it works is macroeconomics.
kangnkodos 6y ago
I agree that no one really knows. My reasons are a little different. Look at what happens when there is a run on a bank. If the bank is insured, then some other bigger entity says they will pay all the IOU's. Either they actually pay the IOU's off, or the panic stops, or some combination. But what happens when there is a run on the central bank of a country? If another bigger country (example Germany) bails out a smaller country (example Greece), then the panic stops. If no other country steps in, the currency becomes worthless (example Zimbabwe). But what happens when there is a run on the largest central bank in the world (United States)? A bank so big that no other country can possibly bail them out, even if they wanted to? What happens when there is a run on the reserve currency of the world? No one knows. It never happened before. Also, what set of conditions will cause this run on the reserve currency? People have a lot of educated guesses, but because it has never happened in the past, there is no scientific data available on what does and what doesn't cause it. No one knows.
- dalbasal 6y ago
  Germany bailing out Greece was and is a myth. Germany (actually the ECB and IMF) bailed out (mostly) German bondholders by assuming Greek national debt. In the process, they crashed the Greek economy even worse. It didn't help that Greece had just elected a extremist government to replace the corrupt one they had before. But all told, Greeks paid the price, not germans. The German bailout is populist rhetoric, and untrue. In any case, every major monetary event is unique so "never happened before" is always true. That said, there have been many, many monetary collapses. The roman crisis of the 3rd century is a famous, empire-spanning one. The reason the gold standard was abandoned in 1971 was essentially a run on gold/dollars, the reserve currency of the world.

zajio1am 6y ago

> I would say, no.. considering the divergence of expert opinions. I would disagree and think it needs more details. There is difference between just 'how money works' and 'how economy works'. The first question 'how money works' is mostly just insitutional and legal knowledge of existing processes of central and commercial banks. OTOH, 'how economy works' is empirical field of knowledge about complex emergent phenomenon - the economy, and contains questions like how would economy reacts on specific monetary policies. That is what macroeconomic theories like keyensianism and monetarism are about.

dalbasal 6y ago
Keyensianism and monetarism are essentially "how money works." Microeconomics is "how the economy works," and while there are still divergent opinions, there's stability in that divergence. Ricardo is still foundational when it comes to trade, for example. The premise of macroeconomics is that how money works is different to that. That started with keynes, and continues through keynesianism. Monetarism literally refers to "a theory of money." The point is that it isn't mostly just institutional and legal knowledge of existing processes of central and commercial banks. Those things regulate and affect money, but how it works is macroeconomics.

kangnkodos 6y ago

I agree that no one really knows. My reasons are a little different. Look at what happens when there is a run on a bank. If the bank is insured, then some other bigger entity says they will pay all the IOU's. Either they actually pay the IOU's off, or the panic stops, or some combination. But what happens when there is a run on the central bank of a country? If another bigger country (example Germany) bails out a smaller country (example Greece), then the panic stops. If no other country steps in, the currency becomes worthless (example Zimbabwe). But what happens when there is a run on the largest central bank in the world (United States)? A bank so big that no other country can possibly bail them out, even if they wanted to? What happens when there is a run on the reserve currency of the world? No one knows. It never happened before. Also, what set of conditions will cause this run on the reserve currency? People have a lot of educated guesses, but because it has never happened in the past, there is no scientific data available on what does and what doesn't cause it. No one knows.

dalbasal 6y ago
Germany bailing out Greece was and is a myth. Germany (actually the ECB and IMF) bailed out (mostly) German bondholders by assuming Greek national debt. In the process, they crashed the Greek economy even worse. It didn't help that Greece had just elected a extremist government to replace the corrupt one they had before. But all told, Greeks paid the price, not germans. The German bailout is populist rhetoric, and untrue. In any case, every major monetary event is unique so "never happened before" is always true. That said, there have been many, many monetary collapses. The roman crisis of the 3rd century is a famous, empire-spanning one. The reason the gold standard was abandoned in 1971 was essentially a run on gold/dollars, the reserve currency of the world.