Crypto-Current (055)

§5.65 — When conceived theoretically – or targeted administratively – as a macroeconomic aggregate, the ‘quantity of money’ turns out to be an extraordinarily elusive object. Two sources of complexity are especially notable. Firstly, the effective quantity of money is a twin-factor product, comparable to physical momentum, of monetary mass multiplied by velocity (the macroeconomic ‘multiplier’).  Secondly, the nature of money is inherently multiple, and intensive. This is formally recognized by the systematically differentiated – and nested – monetary definitions (M0, M1, M2, M3 … Mn …MΩ) employed by economists and financial professional.[1] Any asset of non-zero liquidity is money to some degree of intensity. (Monetary intensity is approximated by the reciprocal of the index.) Between the speeds and types of money there is only illusory orthogonality, or theoretical decomposition of the diagonal.

§5.651 — The most consequential area of controversy within the macroeconomic era – with intellectual roots that can be pursued back to the 16th century – concerns the relation of the velocity of money to its quantity. According to Irving Fisher’s formula MV = PQ, when the quantity of money and goods (‘M’ and ‘Q’) is held constant, the price level (‘P’) becomes a function of monetary velocity (‘V’). Potentially, and as a matter of historical fact, an entire technoscience of monetary management follows. Any authority that is attributed with responsibility for the money supply is compelled to concern itself with liquidity. Tightening-loosening defines the control axis.

§5.652 — Given the extreme complications of technical monetary analysis, it is not unrealistic to describe macroeconomics as the monetary neo-baroque. Its elaborations are implicitly unlimited. To present its convolutions as ultimately manageable requires a more-or-less cynical public relations exercise. It cannot be admitted – for reasons of trust-preservation – that the final overseers of the financial world do not have, and cannot have, any definite idea what money is. MΩ has no calculable determination. Far more importantly, at the other extreme, M0 is an advanced edge, and not a settled reality. It designates the intensive frontier of cash, commercial liquidity, or what money can do, as it has yet been historically encountered. In other words, it is problematic rather than theorematic, experimental rather than conceptual. Mx deranges all the formulas. We haven’t seen anything yet. Crypto-currency is showing us that.  §5.653 — To refer to a neo-baroque is to invoke a decadent paradigm, in something like the Kuhnian sense.[2] Ptolemaic cosmology is the unsurpassable model. Crucially, it is indefinitely expandable. As it decays, epicycles accumulate, but never to a point of intrinsic lethality. There is no such point. The fundamental error is wholly retrospective. It would be no less mistaken to imagine the monetary neo-baroque dying from its own exploding complexity. Macro need only add epicycles. Nothing impedes such a development. Computers and professional hyper-specialization even facilitate it. Simplicity is for gold-bugs, and other primitives. If Macro’s hypertrophic theoretical complexity appears increasingly magical – so much the better. Magic, as we have repeatedly seen, is functional. What matters to Macro – as institution, meta-institution, or regime – is primarily the credible illusion of understanding. That is where its authority lies. Macroeconomics must only pretend to a theoretical competence that is practically unobtainable. In this it epitomizes the socio-cultural status of expertise in progressive modernity, if not something far more general. Clerical authority has always rested on a pretention to mastery of that which is a mystery even to itself. Nothing new is to be expected there. Innovation arrives from outside.

[1] Precise definitions of the monetary phases have not been internationally standardized. The principle, however, is uncontroversial. Money is defined as a series of nested categories, proceeding from the narrowest to the broadest types (with the latter enveloping the former). Monetary ‘narrowness’ closely tracks liquidity. The extreme of narrow money, M0, is cash. Broader phases of money include bank credits, of incrementally rising maturity, and other comparatively viscous financial assets. Typically (but with some national variance), M0 is strict cash, M1 encompasses M0 and cash-like equivalents, M2 adds current accounts, M3 adds longer-term bank deposits and similar financial assets, while M4 (and higher) extends to monetizable assets and investments on longer time-horizons. Broader phases are more inclusive, more complex, more diverse, and of lower mean liquidity. They therefore exemplify, most obviously, the Monetary Neo-Baroque. A tempting error would be to construe the monetary phases as ascending from the intuitively accessible into lofty technical obscurities. … Cash is cryptic. …

[2] Thomas Kuhn outlined his catastrophic model of scientific history in The Structure of Scientific Revolutions (1962). He argues that empirical research is necessarily dominated by a conceptual framework which is comparatively resilient in respect to factual disconfirmation. When expressed at this level of generality, this is not a conclusion unique to Kuhn. It is one way that Kant’s Copernican Revolution is expressed through the philosophy of science. Data is never unframed.

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