Types of Money

I see the types of money section has been removed. I'm wondering if we could discuss this and consider putting it back. The stated reason is that it is redundant. I don't see this at all.
alluding to the concept of "types of money" via links while discussing the history of money is *not* the same as discussing the conceptual framework behind the idea that money has types. It fails to focus on the conceptual dynamics and leaves the false impression that things like "fiat money" are nothing more than different ways to back physical currency. In today's world where the vast majority of the money supply exists solely in electronic or contractual form, it is important for people to understand the distinction between money and currency.
the dynamics implied by the "types of money" are important to understanding much of modern monetary policy or the relationship between currency fluctuations and political risk, i.e. the relationship between contracts, legal systems, risk, future vs. current payment etc.
the idea that money has different "types" is important to understanding why there is such a thing as M1, M2, M3 or why countries may differ in the way they track money supply.
without an explicit discussion of the types of money we are likely to eventually get editors trying to turn this article into a diatrabe for one standard or another (there were several paragraphs that appeared to be thinly veiled polemics for the gold standard in the article before we began working on this article last week).
similarly we are likely to get a reappearance of the section that tried to insist that credit was something different from money rather than a particular type of money.
the section also discussed strengths and limitation of the different types of money and their effects on economic growth. I don't see where that appears anywhere in the remainder of the article.
I do agree that there is some repetition ... rather than remove the types of money section, I would recommend that we deal with some of the redundancy by moving some of the pro/con stuff from the history of money section to the types of money section. There will, however, be a limit to the amount we can move because some of the concepts that rightly belong in a discussion of types of money are needed to understand the history.
Another possibility is to move the types of money section before the history of money section. This would reduce the need to explain types of money in the history section. I didn't do that earlier because most people have a concrete notion of money (money = currency) and so might find the "types of money" discussion a bit dry. I felt putting the history of money section first helps people make the transition from a concrete to an abstract understanding of money. Readers are more prepared for the more theoretical discussion after they have read the history section.
Egfrank 04:15, 15 May 2007 (UTC)
I take your point but, to the extent that it wasn't redundant, I felt that the section gave a rather uncritical and unencyclopedic presentation of the views of Ludwig von Mises, who is a pretty marginal figure in monetary theory these days. As in so much of this article, what we need is citation to a proper source giving an accessible presentation of the mainstream view. It's not really my field, but I'll see what I can dig up. JQ 12:05, 15 May 2007 (UTC)
I agree that the section is incomplete and unbalanced. For example, whereas 3 whole sub-sections are devoted to each of the Mises categories, there is almost no discussion of the categorization system behind M0-3 (important for a great deal of econometric research). Also the introductory paragraph to the section only mentions Mises and says nothing about modern theory. Anything you can do to address this would be great!
I think a balanced presentation should include all the mainstream categorization systems we can find, with an explanation of their theoretical or pragmatic significance. M0-3 seems to use liquidity as the categorization principle with currency (M0) being the most liquid and large time deposits (M3) being the least. By contrast the commodity-credit-fiat distinction focuses on the source of trust. The value of each categorization system depends on the kind of economic behavior we need to induce or explain.
Minor though Mises might be, the system of categorization that he bases his work upon appears to be widely taught based on a quick survey of on-line college course lecture notes. (But note the variation in the third category which Mises calls credit money: Deposit money (UPenn), fiduciary money(Drexel), Electronic money(iowa). )
UPenn: http://www.econ.upenn.edu/econ2/ch13_econ2.pdf
Drexel: http://william-king.www.drexel.edu/top/Prin/txt/money/types.html
Iowa state: http://www.econ.iastate.edu/classes/econ353/tesfatsion/mish3a.htm#Meaning
One possible reason why this categorization does not get heavy play in modern monetary theory is that such theory was developed primarily to explain the behavior of developed economies. Liquidity based categorization is more useful and interesting because the different types co-exist within a developed economy. This makes them more amenable to econometric modeling.
On the other hand, there are contexts where trust based categorizations such as commodity-fiat-credit are quite helpful in framing problems. I recall some work I did several years ago on African warehouse receipts programs and their role in developing the supply of capital. Fiat currencies rely heavily on the economics of trust. When governments are perceived by the West as having little stability and transparency, it is difficult to use free market forces to attract capital or stabilize the currency. One solution to this is to use modern financial markets and hedging strategies to create stable money-like instruments (warehouse receipts) backed by tradable commodities. The idea is that the warehouse receipts will be attractive to both local and western investors because they are backed by the world financial markets and not by the government.
Can you clarify what you meant by uncritical rehashing of Mises? Beyond the wording for the definitions of each type of money and the comment that he based his theory around this particular categorization system, I'm not sure what comes from Mises in this section. Most of the material is a rearrangement from the pre-improvement drive version of the Wiki article and came from several editors who didn't cite their sources. The explanation of credit risk is standard finance and I believe postdates the cited work by Mises. The discussion of the role of supply and demand in commodity based currencies was part of the original Wiki article and goes back to Adam Smith - the Wealth of Nations. (see Book I, chapters III-V). As for the categorization system, Adam Smith does not use the terms commodity and fiat currency but the concept is present in books III when he theorizes that weighing coins is burdensome so people began to trust coins based on their imprint and not their metallic weight.
I'm going to put the section back with some reworking to make it clearer that there are alternate categorization schemes, but it will be just a start. At least that way we will have a text over which we can discuss specific problems. Egfrank 03:35, 16 May 2007 (UTC)
I guess I was put off at the start by the unencyclopedic tone of "a point driven home in his (von Mises) book The Theory of Money and Credit", and some unsourced claims in the discussion that followed.
More to the point though, as your discussion indicates, the commodity-fiat-credit categorization recapitulates the historical development we already have in the article. If we want to use any of this, including history of thought on the topic, it fits naturally in the history section. For a modern approach, we really want to focus on liquidity, as you say. Also, we need a main article on Monetary economics, which currently just redirects here. Money supply needs lots of work too, unfortunately.JQ 08:05, 16 May 2007 (UTC)
I wonder if we might be having a debate here between a macro-economic perspective and a finance perspective? If we want to be throughly modern, I think we also need to consider trust, risk, and institutional stability as well as liquidity. Even cash holdings of a currency without trust are not going to be very liquid.
The commodity/fiat/credit distinction may no longer seem relevant when most modern currencies are fiat based or pegged in some form to one that is, but the issues it raises haven't gone away. It is impossible to model a fiat currency or foreign investment flows without considering things like political risk or the stability of the banking system. Also the widespread use of derivatives effectively recommoditizes some forms of money - for example, warehouse receipts programs turn commodity deposits into bank deposits against which farmers can withdraw local currency on demand. Egfrank 05:32, 17 May 2007 (UTC)
Good points. My feeling is that the best strategy may be to work on a Monetary economics article, and an improved article on Money supply, extracts of which could then be included in Money. The JEL classification codes list the following headings that could be used as a starting point (not all would be relevant at this stage) JEL: E4 - Money and Interest Rates
JEL: E40 - General
JEL: E41 - Demand for Money
JEL: E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System
JEL: E43 - Determination of Interest Rates; Term Structure of Interest Rates
JEL: E44 - Financial Markets and the Macroeconomy
JEL: E47 - Forecasting and Simulation
JEL: E49 - Other
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
JEL: E50 - General
JEL: E51 - Money Supply; Credit; Money Multipliers
JEL: E52 - Monetary Policy (Targets, Instruments, and Effects)
JEL: E58 - Central Banks and Their Policies
JEL: E59 - Other
How does that sound?JQ 07:34, 17 May 2007 (UTC)
I think working on the Money Supply and Monetary Economics articles makes a lot of sense. It will easier to summarize in the money article after writing up the details. BTW were you aware that there is a Monetarism article? Monetary Economics really deserves its own article, but as a temporary move, I've changed its redirect to monetarism.
I'm fine with the JEL classification as headings, but I wonder if we might be better off starting work on a history/mini-lit-review section and then branching out from there? Neither of us are specialists in monetary economics it would give us both an opportunity to review what's out there. Based on my own brief reading so far, one of the challenges we face is that the field itself seems to be in a bit of a transition. (Ah - and people think contributing to Wikipedia is easy :-)) Cheers, Egfrank 05:12, 18 May 2007 (UTC)
Indeed it's a challenge. I'll put out some calls for help when I get a moment.JQ 08:36, 18 May 2007 (UTC)