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Ch14 EE Daly Farley
Ch14 EE Daly Farley
Is it “Money is the root of all evil.” or “The love of money is the root of all evil”
Chapter Overview
o Money
o Use Value and Exchange Value
o Seigniorage
o Transactions with and without money
o Virtual Wealth and Fiduciary Issue
o Creating Money - Money as a symbol
o The Fractional Reserve System
o Money as a Public Good
o Money and Thermodynamics
Money functions
“Anyone who is not confused by money probably hasn’t
thought about it very much.”
Money is:
A medium of exchange
A unit of account
A store of value
M* - M = ∆M Profit
A major transition from increasing use value to increasing exchange value.
Virtual Wealth - is the aggregate value of the real assets that the
community voluntarily abstains from holding in order to hold money instead.
Frederick Soddy
Virtual Wealth
• Frederick Soddy made the distinction between
wealth and debt very clear.
“Wealth is the positive quantity to be measured and money as
the claim to wealth is a debt.”
• Monetary debt, the measure of wealth, is negative wealth, say ‘minus two pigs’. It
obeys the laws of mathematics, but not of physics. Wealth, on the other hand, ‘plus
two pigs’ obeys the laws of thermodynamics as well as mathematics. Positive pigs
die, have to be fed, and cannot reproduce faster than their gestation period allows.
Negative pigs are hyper-fecund and can multiply mathematically without limit.
$100
$90 $81
……..
Bank A Bank B Bank C $72.90 Bank I
Cash
Money as a Public Good
Money can be both created and destroyed thereby forgoing the laws of
thermodynamics. The problem is that though money (the symbol) does not
adhere to the laws of thermodynamics, wealth does.