Money has at least three purposes.16 It is a medium of exchange, a unit of account and a store of value. (Location 254)
The prisoner-of-war camp may have used cigarettes as currency, but any value they had could have disappeared overnight if the POWs had all collectively given up smoking. (Location 322)
Note: Surely this results in less of it. The huge stones are not intrinsically valuable .
If my account has a balance of £100, that means my bank owes me £100 and promises to repay me as soon as I ask for that money. I can then transfer that debt to someone else to pay for something. Banks are usually trusted, so there’s no need for the seller to take a view on how reliable I am. (Location 357)
Note: The banks owe you - when you pay for something, you are transfering that debt to someone else.
Banks settle their debts at the end of every day11 but, rather than cars and carpets they transfer central bank reserves to one another – these are the means of settlement within the banking system, discharging all debts. Like the hawaladars, the banks only have to transfer the net balance that their customers have transferred over the day, just as the two brothers did at the end of the month.12 This creates liquidity – it is easier to transact – but also risk. One of the banks in the system might be unable to make good on all debts, creating trouble for all those who have dealt with them. (Location 443)
as their contemporary followers, is the concept of value. Marx – along with others in a group known as the ‘classical economists’ that includes the much more pro-capitalist Adam Smith – believed all economic value was created by labour in conjunction with the natural world: prices reflected the amount of work done to produce something. (Location 895)
One work of art is worth more than another not because there is more labour involved in producing it but solely because people believe it to be worth more. There is no objective standard of value; it is all based on our individual needs and desires. It is our hunger that means we pay for food and not the work of the farmer. (Location 906)
and so there would always be interest for someone or other, even under communism. (Location 935)
So if central banks routinely set their policy rate below the investment returns available on ‘real assets’ then prices would spiral out of control as more and more people borrowed money to invest. (Location 972)
Later followers of Keynes would call this the ‘paradox of thrift’:39 saving might make an individual wealthier but if everyone tries to do it at once they will get poorer. (Location 1061)
In fact some went even further: in 2009 the Swedish central bank, the Riksbank, was the first to charge private banks for keeping overnight reserves. (Location 1102)
Why this happened provokes intense debate. For many the problem was that the productivity of capital had simply fallen. The natural interest rate was lower because investment was providing lower returns. So interest rates had to be lower because of this structural shift in the economy. This unexplained and sudden fall in productivity growth became known as ‘the productivity puzzle’. (Location 1155)
