Julien: Thanks for your post. A few quick comments.
- Austrian theory, at core, is not particularly concerned with WHAT is money. If the market wants seashells, gold, liquid assets, or futures contracts of a broad basket of commodities, there is nothing inconsistent with Austrian thinking in any of this. Any pro-gold Austrian monetary position is premised not on theory but on historical observation.
- The term ‘money’ in Austrian thinking really just refers to the market’s favoured medium of exchange, which in essence is the most marketable good in any given social context. In the Zimbabwe hyperinflation, fuel coupons were money, not gold. Again, nothing problematic here in terms of Austrian theory. As far as subjective value is concerned, money - that is, the best subjectively determined medium of exchange – is really whatever you want it to be. It’s just that the nature of money means that subjective valuations of money tend to converge on one or only a few media of exchange since subjective valuations of the usefulness of a medium of exchange must account for others’ subjective valuations. A convergence occurs.
- As for the functions of money, to say that the medium of exchange function is theoretically obsolete is to deny the very essence of the money definition. In other words, to say that financial assets for example can perform the exchange function adequately is not denying the medium of exchange function of money, but merely asserting that financial assets can function as money, which is not a controversial assertion in terms of Austrian theory (currently bank-created fiduciary media is money that is really a finanical debt-asset).
- Austrians have been quite clear that the unit of account and store of value functions are derivative functions of the (essential) medium of exchange function and therefore are not core, per se, to the money definition.
- You assert, “Why do individuals and businesses hold cash balances rather than, say, shares in equity unit trusts? After all, unit trust shares are highly liquid. The reason is that the value of cash is (at least meant to be) fairly stable.“ I think this gets it the wrong way around. They hold money (whatever it may be) because it is by definition EVEN MORE marketable than unit trust shares; which is to say that money is considered a better medium of exchange. And because money is so liquid and in such high demand in exchange (and most likely limited in supply), it tends to make it’s price (when not being screwed up by the central bank) relatively stable, i.e. a good store of value.
- The whole point of holding cash (in whatever form) is that 1) we know it is highly marketable and 2) the future is uncertain. You say you know how much milk you will consume 6-months from now, but you don’t. We don’t even know what we’re going to feel like eating for lunch let alone our preferences or whereabouts days, weeks, or months hence. If you ‘buy’ grocery futures/coupons from your supermarket, what are you using to buy them? Money, no? Can these futures coupons be used as a medium of exchange? Yes. Are they a marketable medium? Probably. Are they more marketable than the money you used to first acquire them? No.
I hope this helps. Let me know your thoughts on the above.
