Another great video from Steve Keen and Richard Murphy, who have done stellar work in demystifying the fallacies of mainstream economics with facts, evidence and being sure to chase down and iron out the inconsistencies.

There’s a brief disagreement in here which is fascinating, about the monetarist idea of private money being created through a “multiplier” or fractional reserve banking.

Richard Murphy is correct, it does not work as double-entry bookkeeping.

Keen is also correct: the model works with cash. (The bank won’t, but the model will).

I do hope Prof Steve Keen will walk Dr. Murphy through it, partly because I want to hear it myself. I believe it takes us to the crux of the matter.

These are two fundamentally different and incompatible concepts of money.

• 1) Money is an object - a piece of property - that already has existing, certain value. This is a “metallist” concept. This is highly intuitive, and reflects the subjective experience of individuals who use money, especially people in finance who buy and sell it as an asset. Items of value (like gold coins) are considered the foundation, and dollars and ledgers reflect records of existing value.

• 2) Money as a legal instrument between two persons, that is used to create, track and fulfill future obligations, which means its value is uncertain. The terms of the money creation, and fulfillment are clearly laid out in legal documents that specify deeds, names, and a specific schedule for fulfillment. For publicly created money, it’s the national budget. For commercial banks, it is loans. Fulfillment is not totally certain, and some failure is inevitable. In this model, cash exists as a highly regulated and controlled legal instrument that is an extension of the ledger. It can be used to legally cancel obligations. Double-entry accounting is an expression of that legal bond.

There is no question that empirical evidence shows that #1 is inaccurate and #2 is correct.

There is bound to be confusion when opposing sides in a debate are relying on profoundly different definitions of the same word, “money.”

There is also no question that these are fundamentally incompatible. While #1 is intuitive, it has no epistemological foundation for how money can have any value. It is simply assumed, and the fatal error in the absurd assumption that money has intrinsic value is that it can have value to just one person.

This inaccurate assumption about the nature of money as property is incredibly ingrained, in part because because the math of monetarist formulas like the money multiplier work with them.

What is actually happening is that a false model of banking is confirming a a false model of money.

Dr. Murphy talks about the dual nature of money - it is a kind of information, which is part certain and part uncertain. The entire money system is a system of records, commands, instructions, rules, messages, about real-world obligations being created and fulfilled. Money is created along with the obligations, and as the obligations are fulfilled, the money is destroyed.

TL: DR: money is about other people, not property.

I’ve been working on an extended document on the subject that I hope to release soon. In the meantime, watch this!