Money and Investment

[Joe Leote]

Economist Hyman Minsky defines investment as a financial instrument
which specifies a money-in, money-out relationship.

The investments must be validated by subsequent cash flows, or else, the
event is called a default or partial default.

Basic investments are equity (e.g., stocks) and debt (e.g., bonds).

Debt in simple form is a contract which specifies (1) money in as
principal; (2) time to maturity; and (3) money back plus interest. The
debt issuer gets money, the investor gets a promise of repayment of
principal plus interest.

Equity in simple form is a contract which specifies (1) money in as a
contribution to net worth; (2) voting rights in the firm; and (3) right
to participate in dividends distributed at the discretion of firm managers.

If the equity or debt instruments trade in a secondary market, the value
of these instruments is not fixed, but "floats" at the market price.

Equity and insurance contracts have a specified contingency event which
is a conditional obligation associated with the money-out payments. If
event X occurs (profits earned and dividends declared, or insured event
happens) then the money-out payment comes due. Insurance contracts are a
form of gambling but with social values attached, however, that does not
remove them from the category of investments, which are money-in, time
or conditional events, money-out contracts.

Joe

[Jean Erick]

     This looks clear enough.

       An asset is something that brings in value, financial in this context..   An investment is the gaining of an asset.

You can exchange money for goods, you can rent it out, you can gamble it.

     But the logical decision process for return is different.  While for the individual, equities are sometimes considered gambling, the lack of an aggregate return from equity is only due to a dysfunctional system.  It is not expected nor tolerated (within peoples capabilities).  Over time, a return is expected.  Only insurance has that continuous logical "gate" of yes/no.  No return is good news.  Obviating that some insurances are written to provide a return aside from the decision fork event.

     But, I was kind of surpised of late to find the idea that the primary reason FOR insurance is to give the insurer money to invest.

 

James

[Joe Leote]

James,

Life is a risky adventure ... so in that sense, debt, equity, insurance, it is all a form of gambling.

Anyone who is not an actuarial scientist would gain a substantial education by reading this paper.

Fundamental Concepts of Actuarial Science, 90 page pdf (Charles Trowbridge):
http://www.actuarialfoundation.org/research_edu/fundamental.pdf

Do you think Warren Buffet, who likes to own controlling shares in insurance companies and credit rating agencies, where the wisdom to make profits is generated by actuarial scientists, has made these investments by accident?

Of course the actuarial scientists at credit rating agencies got many ratings wrong prior to the financial crisis, however, if you look at the investments by Warren Buffet, you see that he is wise at understanding how society makes cash flow securely to certain companies and firms which are positioned to keep the cash flowing in good time or bad, the others take more risk at the margin then an investor like Warren Buffet, who gets cash flow from the persistent actions and risks taken by others.

Hyman Minsky refers to these investment positions, with relatively secure cash flow based on group dynamics, as "hedge" finance positions.

Joe

[Jean Erick]

     Very interesting.  I don't think I'll have time to read the paper but I'll save it.

I'll guess assume that Buffet was introduced to insurance earlier in his life.  Seeing a good position,

he'd have stuck with it.

     I liked his comment early in the crisis.  He said, all in all, we were about $4 Trillion down.

That is $2 Trillion less than the "uppers" had saved.  ;-)

     As far as the actuarials getting it wrong, I'm very interested in this guy, Keene, in Australia.

He predicted it but he had a "formal" way to to it.  That is, as opposed to the number grunching

that only a rare guy like Roubini does, it might be simpler system that could be taught to others.

    Even Roubini gave up on preventing bubbles.  Keene might have a way to predict them.

[Joe Leote]

The links below can be read in the context of my chart defining distinct properties of "money" versus "investment".

The adjective "crisp" in the first two lines applies to properties which make "money" clearly distinct from "investment".



Banks as creators of money (Daniel H. Neison) - Discusses the "Moneyness" of Bank Liabilities
http://ineteconomics.org/blog/money-view/banks-creators-money

Commercial Banks as Creators of Money (James Tobin, 12 page pdf):
http://cowles.econ.yale.edu/P/cp/p02a/p0205.pdf

Joe

[Jean Erick]

      Eloquent but confused.   IMHO.  I tried to read it but it is a masss of confusion, again, IMHO.

     Nothing has changed.  IMHO, you continue your confusion about money and debt.  And the english language.

         The verb lend acts upon the noun money.

         This --process--, a noun, is then labeled as, for example, an --investment--.

 

     As money is a noun, there may be many acts performed upon and with it.

     Each is a subset to the noun.

     In economics, we are concerned with three things that can be done with money:

    1. exchanged for a real good

    2. rented

    3. gambled

 

     There can be no "comparison" between a noun and a verb.  You can compare apples and oranges.  And you can compare the eating of one

apple with the eating of another.  But you can't compare the apple with the eating of it.

     I suspect that ALL financial instruments, money included, could be described strictly by their liquiity characteristics.

    this might be very revealing in that, at first glance, cash is the most liguid.  But the volume of tafffic, in spite of

its complex mileau, is probably dwarfed by the liquidity volume of less complex transfers.

 

One of many confusions in your post.

     "the adjective "crisp"" ..... "distinct from investment", yet crisp is used to describe investment when it doesn't apply to it.

Distinct, yet descriptive.

 

     Sorry, very eloquent display.

 

James

 

----- Original Message -----

From: Joe Leote

To: understan...@googlegroups.com

[Joe Leote]

OK, I see the concept of a "fuzzy" variable escapes you entirely.

Although an investment is both a verb (human interaction) and a noun (financial instrument) therefore, it has a fuzzy interpretation which you apparently cannot fathom.

Joe

[Jean Erick]

       No.  Your error is your insistance in not accepting where we disagree.

     I think it is important, and have to some level, establishished deffinite definitions of money and debt and I recognize these concepts, while not fuzzy in defintion,

 are fuzzy in the real world.

     Your position is that they are inhearantly fuzzy in definition and it is useless to attempt to make a distinction.

    But, instead of noting any invalidities in my definitions, you just add confusion to the discussion.

 

     Most of your "arguments" are not arguments.  They are mistatements of my position, and are just distractions.  Look at your sentences.

Your first sentence is clear, but ignores the FACT that I have voiced recognition of fuzziness in the real workd of debt and money. 

     In the second,   a verb is not limited to human interaction, period. Yet you, carelessly, word it that way.  And a financial instrument is a noun but a noun is not,

necessarily a financial instrument.  And then the "investment" word.  Something new you have thrown in.  I've been talking about money and debt.

So, that one sentence has three confusions in it.  And you are saying that things are escaping me?   What I see in your second sentence is more of that

opinion that I cannot fathom fuzziness, and aside from that, it's amazing how much confusion can be in one sentence.

 

     Although, it is true that I cannot fathom YOUR fuzziness.  That, seems to be limitless.  But then it would have to be.  After all, according to you,

it is not turtles all the way down, it is fuzziness everywhere.  Just a haze of intangilble fuzzies, meandering in their definition, changing like clouds in the sky.

Neither money nor debt, male or female, electron nor quark.  HEY!  There's an idea.  How about like a nuetrino? Iit changes as it moves through space so debt and money and investment are differnt forms of the same thing.  And there, at the end of it, your beloved entropy.  ;-)

[Joe Leote]

James,

I have asked you several times to propose a definition of "money" as distinct from "debt." The only words you propose to my recollection are "money is generic good." This is a nonsensical definition.

If you want gold coins to be "money," or diamonds, or some other "token," then as soon as people start keeping track of money with others in terms of those tokens, one has invented double-entry accounting and money and debt become fuzzy pairs.

You can accuse me of misunderstanding your position all you want, and you need not agree with me, but you have not made a coherent argument for a system in which double-entry accounting exists and money can be distinctly separated from debt.

Joe

[Jean Erick]

     Anything is non sensical if you refuse to accept the sence of it.

 

     Money is cash, savings, and those transaction deposits which are personal checking accounts, that is the money was put into the account by the account holder.

     or some entity other than the bank itself as a loan.  I do not count travelers checks as money because they are simply a form of check, which is an order to tranfer

     money.

 

AS BEFORE!!!!  I have defined money and debt by how they FUNCTION.

     Money FUNCTIONS as generic good (medium of exchange)   It is that one good, and only  good, which may be used to exchange for any other real good.

     It is legal tender for all DEBTS, public and private, and payment of taxes.  Notice that even the dollar bill denotes a distinction.

     No liability is generated by its transfer except relative to the delivery of the real good it is exchanged for

     You see, if you want some real good, there is only one legal way to get it.  You have to exhange ONE, and can use ONLY that ONE, thing for it.

     Can you guess what that ONE thing is.  Are you still confused?

 

   Debt is a RENTING of money or the creation of drawing power on money (as in bank reserve lending).  A liability follows to the receiver.

 

     Money is money.  Debt is the result of something that is DONE with MONEY.  Either the direct renting of a specific amount of money, or the serial renting of a

     specific amount money, OR the COMBINATION of serial lending of a specific money and the granting of drawing rights on the general money supply that the

     banking system creates.

 

   Money is a direct draw                                              on goods.

   Debt    is a direct draw on money, an indirect draw on goods.

 

   Debt draws on money draws on goods.

 

The set of value

     1. the subset of value that is free

     2. the subset of value that is owned by one and wanted by another = GOODS

           Trading of goods:

           A. Itinerant - real goods traded for real goods

                            - individual to individual 

                            - traffic itinerant

                            - pricing volatile

           B. "bazaar" - real goods are traded-bartered for real goods

                            - regular traffic in trading ("bazaar")

                            -  "price" is variable within a barter range.

                            - barter range is establsihed by both the bartering of many people and the individual barter between traders.

              (1) Sub set to goods - One good (gold, cigarrettes, sea shells, etc) becomes the "generic" good, it can be traded for any other good.

                                               It has abrupt increase in liquidity relative to being used to exchange for another good.  First form of MONEY

                                             - Confusion exists between its intrinsic value and assigned value.

                   Fiatness removes intrinsic value = modern MONEY.

                  Trading of goods:

                  The invention of money changed the bazaar into the

           C.     market

                  - traders divided into

                     - buyers carry only generic good - money

                     -  sellers carry only real goods

                  - barter range eliminated. price is set

                  - price is negoatiated indirectly, non-personally

                  - price is set by group behavior vs seller

 

     The importance of money as a good is related to the freedom-slavery history and evolution of freedom.

Labor is a good.  Labor is classically exchanged for other goods, those goods now in the form of the generic good, money.

A detachment of money from that of the "good" that it is, and therefore, the good of labor is the detachment from reconizing the difference between freedom and slavery.

 

     I don't have to explain to you why double entry doesn't produce fuzzy for two reasons:  1.  I don't see it.  2.You  haven't presented a case to back up your statement that it does.

Didn't you learn the difference between an opening statement and making your case?  Where is your case?  Where is your explanation of how double entry creates fuzzy?

 

     Bullets fired during revolutions are generally considered non-fuzzy events.

[Joe Leote]

James,

Why do you assume I am confused when you describe the sensible, traditional view of money as a medium of exchange recognized legally as the transfer of title to an asset?

In contemporary set theory a crisp set includes objects which are distinct, I see that you wish to define a system in which money and debt are crisp sets.

However in contemporary set theory a fuzzy set includes objects which are non-distinct.

I do not see how society can make money distinct from debt as a crisp set while permitting persons to deposit money in transaction accounts, checking accounts, or other financial instruments which function as "money" per your definitions below, since the moment the money goes into the accounts it is also a form of debt owed by the financial institution to the depositor of the money.

Joe

[Jean Erick]

  .    "confused":  Because I HAD to include the "medium of exchange" phrase for you to accept it (thank you).  But "generic good" is more specific and accurately descriptive, while maintaining accuracy, than the more general "medium of exchange".

 

     A theory, such as set, would include the possibility of fuzziness, if it were a developed theory, as it seems to be in this case.  But that does not mean you have to use it.

You only use fuzzy when you cannot do otherwise.  I'm attempting to define it otherwise.

 

     "Society" cannot do much unless there is a reasonable theory to grasp.  Economic theory is not "reasonable", agreed upon.  I'm just trying to call them as I see them.

 

      The interesting part to me, at this point, is, once money is distinct from debt, you can then start to look to see if there are other ways that money is really created.

For instance, money that is wages and salaries would go into an account that is "money" but what if the money that does in is borrowed itself?  Perhaps there are money creating

mechanisms that are not recongized as such.

 

     I think that your looking for sinks and sources is a grand attempt to deal with the arena but, some time ago, I half felt that the economy could not be understood except by

a  "working" computer model.  And I'm not ready to dedicate my life to creating that.  But I think that recognizing money and debt is seprate gives possibilities.

    Money is simply money.  But debt can exist on it's own.  Debt "rides" on money transfers and is created on it's own.  To me, just making that distinction clarifies things.

    I think it is progress to see debt as created by these mechanisms.  After all, the description is accurate and truthful.

 

       And essentially, money frees, enables choice.  Debt limits choice, and relies on promice.  I think looking at it that way is accurate, and denotes the productive use of debt,

which encourages it, and denotes the destructive use of it, which discourages that.

[Joe Leote]

What word could possibly be more generic, and therefore less specific, then the word"generic"?

I learned many years ago, from reading books by the spiritual author Emmit Fox, that when reading scripture, each word should be given its broadest interpretation in the given context, which is a helpful practice when studying the meaning of words in any thesaurus (any set of terms proposed by experts in a mental discipline).

So I would say the word "generic" is about as generic as a word can be and the least specific.

Joe