Flawed Heuristics I

[Timm]

"Credit isn't money."

This is a heuristic - a rule of thumb.

A more accurate statement would be: Fiat is not the same as promises of fiat.

Accepting this rule of thumb aids the understanding of pretty much everything that has happened over the last half decade*

It explains the difference between a person, bank or stat,e making a promise and their having the ability to perform on that promise.

But:

State fiat is only money in that its acceptance is guaranteed.

It has no inherent value other than the heuristical faith in its value.

We know this.

At the same time: Bank credit has been used as money for so long and so much

(and has been 100% exchangable with state fiat), that it has become money.

State guarantees of bank deposits liabilities / bailouts further blur the boundary betwwen bank credit and state fiat**.

We are at risk of describing commerce in terms of money that does not exist and non-money that is*** money.

*or two.

** de facto, £85k of credit is fiat per person. Bailouts blur the boundary between state and private promise.

** very vey nearly

Edited September 14, 2011 by Timm