Table Of ContentMONEY
By enabling the storage and transfer of purchasing power, money facilitates
economic transactions and coordinates economic activity. But what is money?
How is it generated? Distributed? How does money acquire value and that value
change? How does money impact the economy, society?
This book explores money as a system of “tokens” that represent the purchasing
power of individual agents. It looks at how money developed from debt/credit
relationships, barter and coins into a system of gold-backed currencies and bank
credit and on to the present system of fi at money, bank credit, near-money and,
more recently, digital currencies. The author successively examines how the money
circuit has changed over the last 50 years, a period of stagnant wages, increased
household borrowing and growing economic complexity, and argues for a new
theory of economies as complex systems, coordinated by a banking and fi nancial
system.
Money: What It Is, How It’s Created, Who Gets It and Why It Matters will be of
interest to students of economics and fi nance theory and anyone wanting a more
complete understanding of monetary theory, economics, money and banking.
Sergio M. Focardi is Professor of Finance and researcher at the Léonard de Vinci
Pôle Universitaire, Paris-La Defense, France. He is a member of the editorial board
of the Journal of Portfolio Management and has authored numerous articles and books
on mathematical fi nance, including a series of monographs for the CFA Institute
Research Foundation, including the recent Equity Valuation: Science, Art, or Craft?
Economics in the Real World
For a full list of titles in this series, please visit https://www.routledge.com/
Economics-in-the-Real-World/book-series/ERW
1. Education Is Not an App
The Future of University Teaching in the Internet Age
Jonathan A. Poritz and Jonathan Rees
2. The Privileges of Wealth
Rising Inequality and the Growing Racial Divide
Robert B. Williams
3. Neuroliberalism
Behavioural Government in the Twenty-First Century
Mark Whitehead, Rhys Jones, Rachel Lilley, Jessica Pykett, and Rachel Howell
4. The Rise of Big Government
How Egalitarianism Conquered America
Sven R. Larson
5. Money
What It Is, How It’s Created, Who Gets It, and Why It Matters
Sergio M. Focardi
MONEY
What It Is, How It’s Created, Who
Gets It, and Why It Matters
Sergio M. Focardi
First published 2018
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2018 Sergio M. Focardi
The right of Sergio M. Focardi to be identifi ed as author of this work has
been asserted by him in accordance with sections 77 and 78 of the Copyright,
Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in any
information storage or retrieval system, without permission in writing from the
publishers.
Trademark notice: Product or corporate names may be trademarks or registered
trademarks, and are used only for identifi cation and explanation without intent
to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Focardi, Sergio M., author.
Title: Money : what it is, how it’s created, who gets it and why it matters /
Sergio M. Focardi.
Description: Abingdon, Oxon ; New York, NY : Routledge, 2018. | Series:
Economics in the real world | Includes bibliographical references and index.
Identifi ers: LCCN 2017048550 (print) | LCCN 2017051502 (ebook) |
ISBN 9781315391069 (Ebook) | ISBN 9781138228948 (hardback : alk.
paper) | ISBN 9781138228955 (pbk. : alk. paper)
Subjects: LCSH: Money. | Macroeconomics.
Classifi cation: LCC HG220.A2 (ebook) | LCC HG220.A2 F63 2018 (print) |
DDC 332.4—dc23
LC record available at https://lccn.loc.gov/2017048550
ISBN: 978-1-138-22894-8 (hbk)
ISBN: 978-1-138-22895-5 (pbk)
ISBN: 978-1-315-39106-9 (ebk)
Typeset in Bembo
by Apex CoVantage, LLC
ACKNOWLEDGMENTS
The author thanks Caroline L. Jonas who has read and commented on this book
from its conception to its completion and has made a signifi cant contribution to
the historical notes.
CONTENTS
List of exhibits xi
List of boxes xiii
Introductory remarks 1
1 The theory of money: basic concepts, part I 7
1.1 Introduction 7
1.1.1 On the nature, creation, and distribution of money 7
1.1.2 On money and prices 9
1.1.3 On infl ation, growth, and fi nancial and economic crises 10
1.2 Can we do without money? 10
1.2.1 Religious organizations 12
1.2.2 Firms: the invisible, visible, and vanishing hand 13
1.2.3 Post-scarcity societies 14
1.3 Money, markets, and value 16
1.3.1 Economic and fi nancial instability 16
1.3.2 The Quantity Theory of Money 21
1.3.3 Capitalists, wage earners, and money 22
1.3.4 Are free markets really self-regulating? 23
1.3.5 Local and global interactions and their role in
determining prices 23
1.3.6 Asset pricing in fi nancial markets 25
1.3.7 Pricing goods and services in competitive markets 26
1.3.8 Value and the segmentation of the economy 27
Notes 28
References 29
viii Contents
2 The theory of money: basic concepts part II 31
2.1 Do we need a theory of money? 31
2.2 Operationalism and theories of money 32
2.3 The concept of stock-fl ow consistency 35
2.4 Money and macroeconomics 35
2.5 A framework for understanding theories of money 39
2.5.1 The nature of money 39
2.5.2 The creation of money 40
2.5.3 The distribution (or allocation) of money 40
2.5.4 How money is accepted, how it acquires value, and
how its value changes over time 40
Notes 41
References 42
3 What is money? 43
3.1 Some brief remarks on money throughout history 43
3.1.1 Barter 44
3.1.2 Commodity money 45
3.1.3 Coins 46
3.1.4 The emergence of a banking system and credit 49
3.1.5 Paper money / banknotes 50
3.1.6 Paper money becomes fi at money 51
3.1.7 Bank deposits / credit money 53
3.2 Alternative forms of money 59
3.2.1 Near-money and the shadow banking system 60
3.2.2 Digital currencies 61
3.2.3 Local (alternative) currencies 64
3.3 So just what is money? Metallists and Chartalists 66
Notes 70
References 71
4 Modelling money 73
4.1 Modelling coins 74
4.2 Modelling fi at money 78
Notes 81
References 81
5 How money is created 83
5.1 The question of money generation 83
5 .2 Creating traditional forms of money 86
5.2.1 Metals and other commodities as money 86
5.2.2 Minting coins 87
Contents ix
5.2.3 Printing banknotes 89
5.2.4 Issuing letters of credit 91
5.3 The creation of bank deposits and the multiplier 92
5.3.1 The verticalist theory of money: banks as intermediaries 93
5.3.2 The multiplier 95
5.4 The creation of bank deposits and endogenous money generation 98
5.4.1 The horizontalist theory of money: endogenous
money generation 100
5.4.2 The nature and function of reserves 101
5.5 Nonconventional ways central banks can create money 102
5.6 Other ways to create money 104
5.6.1 Private credit 104
5.6.2 Creating digital cash 105
5.6.3 Creating private digital currencies 105
5.6.4 Creating state-issued digital currencies 106
Appendix 5.A The equations of the multiplier 107
Notes 107
References 108
6 How money acquires value and how that value
changes over time 110
6.1 How money gains acceptance 110
6.2 How money acquires value 114
6.3 How the value of money changes: the elusive concept of infl ation 116
6.4 Chartalism and the State Theory of Money 120
Appendix 6.A An overview of differential geometry 121
Notes 123
References 124
7 Money: how it’s distributed 125
7.1 The question of the distribution of money 125
7.1.1 The allocation of money 126
7.1.2 Assets and liabilities 127
7.1.3 Financing the state 129
7.1.4 The distribution of coins 129
7.1.5 The allocation of banknotes 130
7.1.6 The allocation of reserves 131
7.1.7 The “distribution” (opening) of bank deposits 132
7 .2 Who gets the (new) money? 135
7.2.1 Conventional ways to distribute (new) money 135
7.2.2 Unconventional ways to distribute (new) money:
QE, QEP, HM, FM TDBs 136
