Counting money

Bank tellers tend to be very fast and very accurate at counting money.  Economists have a more difficult time of it.  They can’t even agree on a definition.  This post was prompted by this article criticizing The Fed on how it measures the money supply.

Once upon a time I worked as a journalist.  I used to say there are two types of figures.  One kind we photographed and put on the front page and they help to sell newspapers.  The other kind help to put things into perspective.  When I got to university and wanted to study economics I found I didn’t have the calculus skills to do econometrics so I have stayed with my idea that statistics help with perspectives.

mystica_Coins_Money_Economics is about relationships.  It is about the relationships that go with the exchange of goods and services and since some exchanges involve the state it is also about our relationships with governments.

Not all exchanges can be recorded let alone measured therefore statistics are of limited use.

Mathematical concepts are useful in that they can simplify the analysis of relationships and help us understand what is happening.  Sometimes statistics can be useful for evaluating things we want to believe.  One should be leery of drawing conclusions from emotional accounts of events.  For example, a former professor claimed that during the industrial revolution things got worse for working people before they got better.  One of his arguments was highly emotional newspaper accounts of children dying in poverty.  I would have been more convinced it he had produced statistics of child mortality rates before, during and after the industrial revolution.

Back to money.  For economists it is difficult to count because there are so many things including cigarettes and candy have been used and there are a number of economic  definitions  depending upon what types of bank deposits are included.  I figure money should be defined as anything that represents purchasing power including and especially computer impulses.

Money is my favorite subject although I have never wanted to be a bank teller.

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2 Responses

  1. You are talking about how we evaluate money and that’s great! I didn’t understand the cigarettes and candy analysis. I would like to call for a summit that where we can discuss how to scientifically make a mathematical evaluation of what money is worth.

  2. Two points. First you obviously went to one of thos ‘bad’ universities where all the economists were scrabbling onto the mathematical band waggon. There is now a great deal of disenchantment with mathematical economics, mainly because their assumptions are by and large drivel. But these academics are desperately holding on the their jobs.

    As for econometrics, past the simple stuff, and if the theory and data is good, that’s all you need; the results from the more complex methodologies are highly dubious.

    Second point. Money also is my favourite subject. I can wax long on it. But one interesting point, most people don’t know that individuals can and do create money. Banks are just individuals that do it bigger and better. As an example, I visit a region in Nigeria from time to time to observe their money supply, made of certain coupons cut from magazines. It has values in US$, and in this region it is preferred to the Nigerian Government note issue. Money is a very interesting subject. Look up ‘optimal currency areas’.

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