Economics for Occupiers Part 8 - Keynesian Economics

In Part 2 we looked at the basic concept of money. To examine the convoluted theories posed by John Maynard Keynes, we have to have a better understanding of money and the banking system. There are three forms of money: intrinsic, promissory and accounting. Intrinsic money, as we have seen, is money that has value by its very nature, like coins made of rare metals. Promissory money is basically a coupon which can (theoretically) be redeemed for something of real value by the issuing authority – i.e. a bank. Accounting money is money you have on deposit at a financial institution. It basically doesn't exist except as a mark on a ledger or a blip in a computer, but it represents a demand that you can make on that financial institution at any time – or in some cases, subject to specific rules you agreed to at the time of deposit, like a retirement account or certificate of deposit.

Wealth is anything of intrinsic value: food, property, manufactured goods, livestock, etc. Promissory and accounting money represents wealth. It’s a demand on the wealth of someone else, and can be exchanged for wealth with anyone else who agrees to the value of the promissory note. Even accounting money can be so exchanged – anyone using a credit card is not exchanging tangible money for products, they are ordering an accounting transfer from one account to another.

At issue is how to balance the amount of money in an economy with the wealth that it represents.

Read more about this in chapter 11 of Economic for Occupiers, now available on Amazon.com.