Read Davidson's Money and the Real World.

Thanks for your answer, but it is rather short ...

I would more like to get something like an argument ... positive or negative ... instead of this very short answer indicating just to read a book ... let me searching for an argument what you possibly think is of interest here in this discussion ... .

The ability of a currency to store value occurs for both external reasons, which you seem to focus on, and internal reasons that revolve around the currency itself. A simple example - in a period of hyperinflation, caused by the use of seigniorage to finance government operations (printing money) will cause the value of currency to diminish quickly in short periods of time classic examples - Germany, Zimbabwe among many). In such cases people attempt not to hold or use the currency or attempt to exchange it for something else immediately after receiving it exactly because the store of value function has broken down (hyperinflation causes the price level to rise and the value of a currency unit to fall appreciably - holders of the currency see the value of their currency holdings reduced.in terms of what they can exchange it for). What people are willing to exchange the currency for is constantly being eroded in such cases and is a good example of how the store of value function works (or doesn't work in this case) regardless of external issues. This is just one example of where the issue is still relevant.

While I could point you to a lot of texts that discuss this at length a simple search of the internet will unearth a lot of good material. A couple fun examples of the functions of money and bitcoin appear in the NY Times this past Saturday (Mar 1, 2014). See Robert Shiller's "Economic View" on money as a unit of account, and Joe Nocera's Opinion column on bitcoin and its store of value. There have been lots of other discussions like this recently in the press and academic blogs

Nocera:

http://www.nytimes.com/2014/03/01/opinion/nocera-the-bitcoin-blasphemy.html?emc=eta1&_r=0

Shiller:

http://www.nytimes.com/2014/03/02/business/in-search-of-a-stable-electronic-currency.html

All right, sorry for my terseness. Capitalism is based on contracts that requires under normal conditions a trusted medium of exchange that also acts as an index, medium to cancel debts plus value storage to provide stability of contract realization.

When the storage of value condition is bypassed such as under inflation, there's an obvious tendency to escape from that currency as a storage of value, Notice that money is a sovereign's prerogative, so that States enforce it, but they can't enforce storage of value so easily.

For a long while, the dollar has been the international medium of exchange, debt cancellation and even storage of value. It is possible that its role is coming to an end that reflects the decline of the US economy, perhaps irremediably.

Davidson has all these points in extreme detail and I read it about 30 years ago.

I do agree with Robert that the storage value of a currency depends on both external reasons and internal reasons that revolve around the currency itself. Money is a useful device (as John Kicks argued in his last book, A Market Theory of Money), but the external conditions matter very much.

Thank you Robert and Leonardo for giving these hints to search more about this.

Taking the description above and interpreting it means, as I understand it, I would say that the argument of the stable condition of the economy is in fact a "condition" of the storage of value function - and as well of the normal economic process - and also as well as a necessary precondition of "valid conditions for starting a discussion about economic principles, about economic theory".

If I wrench this argument a bit more to its core ...

... I am able to say that the storage of value function is not guaranteed in all conditions and all times of any given economy ...

And since recessions and state insolvency appears from time to time ...

... I would say that the definition in the economic theory of the storage of value function is nothing more than a sunshine definition.

And I would also say that the external conditions of a recession or a company or a state insolvency coming aloing with a currency reform should (in my opinion) also be covered by the principles of the economic theory as the basement of economic thinking.

Obviously this is not the case - obviously we do have a sunshine definition only, for now. Or in other words: The existing definition of the storage of value function of money is not perfect, and not valid during each period of economic doing.

Whatever has been written in the last hundred years of economic thinking - I do not see an argument saying that the economic theory is perfect in the area of the definition of the storage of value function of money.

ach monetary reform prooves this argument right, I would say.

And since I am much more like to look at the physical basics of economics I would say that the storage of value function is not a function of money itself. Physically there is no such thing like "value" stored in money, in coins, in notes - and neither in bitcoins also.

I would better say that value is something that is a human given virtual ostensible feature as a common understanding of a given good (money coins, notes) - resulting in something which seems to be a stable trading value ... as long as the external conditions fit right.

I would better say that the storage of value physically lies in the continuity of the sourrounding conditions and the continuity of the physical existence of the sum of all produtcs which money can be given in exchange for.

Or: I would say that money itself has no storage of value function itself.

We have to look for the characteristics of the conditions in which it seems to be the case that you can use money as a storage of value.

That is what I am interested in. I do not see the dicussion in my point of view at its final point for now ...

Perhaps I don't fully follow the initial argument. It seems you can make the same case against the media of exchange role of commodity-currencies/money:

That is, money also requires external factors be present to serve as media of exchange. In a similar way to how we want certain institutions and stable conditions be present to help ensure some money-item will hold a predictable value through time (even if a sovereign guarantees an exchange rate), we'll want similar external forces to be present to help ensure the item will be an acceptable payment in future (even with the sovereign guarantee). Both require things outside the item possessor be present for money to fulfill the store of value and media of exchange roles.

Whether the argument is true or not, I don't see how it changes much about our understanding of money?

All reasons to think that the money is a store of value beause it is a before all a means of exchange. As there is no temporal coincidence of transactions, we need an intermediary of exchange that could more or less maintain its value during time. But there are minimal recquirements: dominated in term of returns by other assets, its real value depreciates with inflation...

Olaf,

You seem to be searching for a rather metaphysical aspect of money. As any human creation, it is transient and the storage of value property has historically been defaced by governments, such as when defacing coins in the Roman Empire. As such, money can remain as a means of trade but not necessarily as a means of value storage, and that is very well understood (look at the incredibly fast international transactions in search of higher returns).

However, money is the most liquid asset of all until replaced by a different one. Typically, if the state loses legitimacy, its supported money goes away as well.

Well, that is a very interesting question, if that argument is also valid for the function of money as a medium of exchange.

Lets have a more closer look to the use of money as a medium of exchange.

I think one must state that there is something which is given in exchange for a given good.

Your argument is more related to the stability and acceptance of the nominal value of the "paper note". If there are notes with a printed "50" on it ... and one note with a printed "100" ... you could say that my arguments are also valid for the "equal value characteristic" of the different nominal value notes.

But the simple fact that the note named money note is in reality handed over for something else would let me state that the "function as a medium of exchange" is still valid.

The "stability of the nominal value of money" has a very huge interference with the storage of value discussion ... but it has this small difference.

And given the case you want to follow my argumenting line ... that money is not really having any inner value and has not really a storage of value function ...

I would also say that it is doubtful that money can really be used as a medium of accounting economics also, as a measuring unit of economics.

And that leads me to the more interesting question: What is the true unit of measruring economics?

That is my main interest ... and I would say that there is a better unit of account, a better answer to what really is going on if you use money as a storage of value ... and this touches the question what is the basic definition of what economic doing is really in its core ...

And if you follow me all that arguments ... I would say that in the end with this kind of answer you can prove that the financial industry is nothing like any normal industry.

Or, at the end: Money can not deliver work at all. Money alone does absolutely nothing. It is only a medium of exchange ... in my point of view. Nor a storage of value and neither the right medium of accounting economics.

The economic theory has to start founding its core definitions on a physical definition, on something which is better than a monetary based economic theory.

I think it is time for rethinking econonmics down to its core. And this discussion is very much linked with my statement that every economy is always and everywhere driven by energy. And very close to this statement there are some alternative answers to the questions above. That is what makes me questioning the different functions of money in the historic meaning.

My feeling is that the historic definition did not answer all questions above in the right way.

I would say that storage of value is a property we want from money not an inherent feature of it.

We want it simply because as individuals there is a time discrepancy between our income and our expenditures.

Our ability to have it depends on the underlying properties of the currency as well - as you said - on the economic conditions of the time. For all intensive purposes, production at any small period of time equals consumption for the economy as a whole. Your savings this month is someone else's consumption this month. Next year, the spending of your savings requires someone else to save, the value of which depends on, inter alia:

- the relative supply and demand for savings at that point in time (and hence, it's value)

- the amount of stuff being produced across the economy that is available for consumption.

If nothing is available to consume because of economic collapse then - all else equal - your savings aren't worth as much as if the economy had experienced a large burst of productivity and output per person has increased. Similarly, if the supply of currency had increased faster than output (ie inflation) then you have also lost purchasing power. Finally, if people's time preferences have changed then the relative desire for saving vs consumption has changed the value of your money (eg when the population is ageing and people have moved from net accumulators/producers of assets to net consumers/dissevers of assets.

I feel the need to add that the desired properties of money - ie divisibility, portability, durability, fungibility, non-consumable and a store of value - are all things we want for it to have its "use" value. "Good" (or preferable) forms of money are those that have these properties while "bad" (non-preferable) forms fail. This is why some things will naturally be preferred by the market to be "money". The inherent features/properties of a banana means that it fails miserably in almost all circumstances, while gold performs very well in almost all circumstances.

Importantly however, like anything else the "value" is subjective, but the physical properties of a good or service naturally make it more or less preferable to humans and human societies as well as naturally making it more or less able to perform the desired functions of money.

Olaf it seems to me that you are trying to re-ask your previous post with different words and trying to understand economics in terms of purely physical dimensions, which is impossible. So change the wording of 'value,' which neoclassicals and Austrian economists will agree is to some degree subjective and replace it with the term 'purchasing power.' When I sell something (including my labor) I need to receive something for it. In a pure barter economy, that would be goods and services, which I may or may not want. In turn, that would require me to undergo an extensive search to trade what I receive for what I want. All very inefficient. Instead, I receive a marker or token that, in principle, reflects the value of my labor or item sold in terms of general purchasing power. This 'money' may be imperfect but it is likely to be a lot better than barter. However, if the purchasing power is not well maintained, this function of money breaks down and its velocity increases sharply as people try to dump this particular hot potato. In the limit think Weimar Germany between the wars or Zimbabwe a few years ago. Money completely breaks down and hyperinflation results.

Does a ship with a tiny whole have the capacity to transport passengers? Yes, as long as passengers think it is too small to sink the ship. As soon as they think it's too big noone will embark. - Does money have the capacity to store value (purchsing power, that is, thanks John). Yes, as long as enough people think it does.

Thus the capacity to store purchasing power relies *completely* on beliefs and trust, since there is not much else you can do with money - unlike bananas and gold (thanks Guy).

@Guy:

Citation:

"I feel the need to add that the desired properties of money - ie divisibility, portability, durability, fungibility, non-consumable and a store of value - are all things we want for it to have its "use" value. "Good" (or preferable) forms of money are those that have these properties while "bad" (non-preferable) forms fail. "

There is one more thing to add: In the physical point of view there is no (!) difference in principle between money and any kind of product.

All monetary systems, notes, coins, (incl. bank accounts, bitcoins or else) are part of our economic system, part of the total sum of produced goods. (included in written ideas, data files or else)

One might think that the only left difference is the in principle unlimited nominal value of money ... but a nominal value could easily also be given to whatever kind of product ...

So You were absolutely right, we do choose some parts of the total available "products" for the use as money ... but it is a free decision, done by preferences of our own.

@John:

I totally agree that it is not possible to understand economics in terms of purely physical dimensions. But that is not my intention.

My intention is to measure the total size of any kind of any possible economy by its defining physical unit. And that is absolutely possible.

And by this alternative way of measuring economics I get a better unterstanding of what is the origin of value, what money really is, and so on.

One take away of this alternative way of rethinking economics:

There is no economic cycle. There is nothing like a business cycle in the light of the physical point of view.

Any given economy is always and everywhere a continuously running process over time.

The only thing which is "cycling around" can be some form of money. But the economy is not at all a cycle - it is a process, continuously running on energy driving it, constantly procucing entrophy.

So, the more exact definition should be:

Any given economy is always and everywhere driven by energy as a continuously running process over time. Its total size is determined by the amount of energy used to produce all kind of products and services.

With this definition you are able to measure any given economy in an absolute and dimenson stable unit - the energy.

Or in other words:

The labour theory of work is valid - just put pure physical energy into the formula instead of human labour, and replace the single product by the total amount of all products and so you get a physical dimension of any given economy in Petajoule - as a reference for a given amount of money floating inside this determined dimension.

And this point of view has effects on the definition and the understanding of money also ... therefore I started this discussion.

I would say that the only reasonable real function of money is the medium of exchange - nor is it a medium of a storage of value, neither a medium of accounting since in physical terms money is not defined as a unit - and therefore is always just a relative unit - and therefore can never be used as a dimension stable unit for measuring economics.

And that is what I can do with energy throughput - that is the final unit and the final limit of the total size of any given economy.

And one good thing: I even can measure the size of any purely barter economy as well. That is something what a monetary unit based accounting system never will deliver, a GDP for a pure barter economy.

It is unbelivable, but the highest level of expressing money today isn't the quantitative theory, as strongly thought. Two other theories form a duality: fiat, versus representative money. The difference between fiat and representative money perceptions is as follows. Fiat money sees the effective money, including broad money, as directly acting and so being instrumented on yielding the nominal and real GDP amounts – i.e. in the long run, the amount of money itself (as supplied-demanded) seems more relevant than the way this amount had resulted at its time. On the contrary, how effective money does (continuously) result remains to monetary policy, as essential by principle for the fiat money environment, and to the short run (Patat 1991; Goodhart 1989).

On the contrary, representative money prefers to focus on ensuring real and proper reserves and then to make each piece of them represented within the money supply and so within the (money) market area – so, the same real GDP’s formation will be automatically and properly ensured; no monetary policy needed. Instead, the public control on money, fortunes and debts stays real and peremptory.

Scheme-Table 1

Representative, versus fiat money’s belongings

Representative money Fiat money

Barter & metal pre- & commodity money Seigniorage

Flat coins & banknotes Law and legal terms of money

Gold & silver standards Monetary policy & central banking

Bimetallism Interest rate: activating & price of money

Gold exchange standard & all money-value standards

Inflation & moneydepreciation (versus appreciation)

Exchange rate reference (value) & nominal anchor

Correlation between exchange rate & external balance of payments’ sold

Money parity & fixed exchange rates Money floating & flexible exchange rates

De- & re-valuation of money Quantitative theory of money

Representative certificates and other titles

Currency areas, including optimum of theory

Bank (here including central bank) reserves

Money & foreign exchange & financial markets

Convertibility Freely usable money & common currency

(sorry for this inconvenience -- it was a scheme for a conference I will attend in the next April.

Medium of exchange and common measure of value are the primary functions of money and 'Store of Value' function of money is the secondary function of money that links between present and future economic variables like consumption, savings, investment etc.

Keynes' Income and Expenditure theory has thrown enough light on this issue. Due to this function money has claims over other things and it is active factor means 'Money does matter'. The theory of value should take in to account both demand and supply side. The cost side explanation fails to give correct picture of the determination of value of any thing in the economy.

My intuition is that your energy theory of value measurement is no different and, therefore, subject to the same flawed critique as the classical labor theory of value. Suppose a production process comes along that allows widgets to be made with less than before. Suppose nothing else changes. You would say the size of the economy has shrunk. We could make something no one wanted but it contains embedded energy, therefore it has the same value/size as something that is wanted in this view o the world.

Probably when money was printed in 100% gold coins it could be represented as a real value on hand, directly correlated to the value of gold at the same era.

Now, when money is a little bit an information like entity (ok not exactly like the bitcoin, but similar to it in many aspects), now when the transaction: "I lend you $1miilion" means nothing else than a keyboard action (remember the tierr 1 and the fractional banking system), money has the value of the 'belief' that the 'printer authority' will survive and will be so strong in future as it is now, at the printing time.

The value of money as a store of value depends on who stands behind that promise. There is a difference between Argentine pesos and Swiss francs in terms of their perception as a store of value.

Inflation and currency devaluation can erode the value of money over time or very quickly, but, in general, so long as you can exchange your money for something of tangible value - a house, an education, healthcare, etc. - then it has value as a store of wealth. No one would grant a 30-year mortgage if they did not think that a dollar in 30-years time would not have some value linked to a dollar's purchasing power today. They may be wrong, but there has to be some sort of trust in dollar to be worth something in 30-years.

I do not think that money is just something that we feel has value. Feelings are quite personal and depend on individual circumstances, so money would then have a very individual value dependent on personal circumstances. Whereas anyone can use the same dollars as legal currency to carry-out transactions with others even if they do not share the same values. That must mean that money has also a shared value that is tentatively accepted by all parties involved in a transaction or in multiple transactions.

@John: You are right, my Theory is very closely linked labour theory of value - but that theory was not thought through to its end.

The answer is, it is right, but for now incomplete described.

Lets see your arguments:

"Suppose a production process comes along that allows widgets to be made with less than before. Suppose nothing else changes. You would say the size of the economy has shrunk."

Lets put this into an example:

Ok, lets Robinson do that job. The first year he made "one stone brick" each day.

He works all day long with his full body power, and so he is delivering the total amount of of work of 292 kWh. (I don't do the calculation here, but he is really working hard, continously 100W all day long). After a year he has 365 stones.

The next year he learns how to use a metal tool which he found by surprise at the beach and with this tool he is able to get two stones each day - as long he is still working the same time all day long with full power.

After this year he has 730 new stones, twice as much as the last year. Good for him. With the same physical working input.

Or he could just think, why working so long? ... and in his third year he is only working half time, and goes to the beach the other half time. Then he gets 365 bricks again - with half amount of work.

I would say, the Robinson economy is the very same size the first year and the second. And the third year it is really half size of the maximum total size possible, because this Robinson economy is limited to the working power of Robinson.

Now lets put prices into this.

The first year each brick he produces he will immediately buy also for one "Rob-Dollar (RD)". So, his salary is one RD each day and one brick is one RD.

The GDP of the economy the first year is 365 RD - or 1 RD per head per day.

The second year ...

What is now the base price: His work or one stone ... Lets have a look.

If his daily salary is still one RD per day, each stone is now 0,5 RD, daily income of Robinson stays at 1 RD each day, because he is producing two stones each day.

Or each stone stays 1 RD ... then the loan of Robinson is now 2 RD ...

The third year is also clear ..

If one stone stays 1 RD, the GDP in one year will be 365 RD.

So, you would say, well, prove is done ...

The big question is, what is the real base for setting the prices.

The price of one stone or the limiting factor of production, "the basic human cost", the working time or as well the energy delivered to do the work?

If he is stll alone on his island ... well, he don't car at all, and does what he wants.

But: Put him in a market competition where the price of one stone is under pressure since he gets twice as much stones as the other Robinson from the other island.

I would say that sooner or later the price of one stone has to shrink by half ... Because the final limiting production "cost" is the total amount of working time available (which is in other words a unit of work over time ... )

And the story is a bit more complex with more than just one brick economy ...

But as long as I know in a subsistency economy ... the final numéraire is one hour of working time ...

no matter of you do sorting out herbs, clean the garden or cut a tree ... or make bricks.

Therefore I would use the total energy delivered (= working over time with full body work) is the reference for the size of the economy, and should be used as a reference for the total amount of money circulating in that given economy.

So, the twe first years the size of the Robonson economy is equivalent to 292 kWh, and in the third it is half of it.

The advantage is: This unit stays over time and is valid on every place in the universe. I can excatly and easily understand if there is an information of another island, ... and ts economy is measured with the size of 2920 kWh in a year.

Then I know ... there must be at minimum ten Robinsons working.

I have no idea at all WHAT kind of procuct they produce.

I have not a glue if they even know what a brick is.

Maybe these ten Robinsons build wooden houses all year long ... I don't care.

But I know: They are working hard ... and I have a very good impression of how much they are able to work in a year ...

Your next argument:

"We could make something no one wanted but it contains embedded energy, therefore it has the same value/size as something that is wanted in this view o the world."

Yes, that could be.

If these ten Robinsons build something the first half year, and destroy it the other half year ... well, I do not care. If they like to work like this ... "

But in a competitive economy normally no one is wasting working force for nothing - if he knew better."

Or, if nine of the other Robinsons work hard and make good things ... and one is making crap ... I would assume this guy will die out ... if he did not get some food as a gift from the others.

Or in other words: You can waste your energy ... yes. If you want that, and if you have something to waste.

But as long as you waste it one year long I take it as a "courious characteristic thing" of the total economy ... and count your work as part of the total size of the energy-GDP. ... But I have some doubts that this is the case very long ...

@Demetris:

"Probably when money was printed in 100% gold coins it could be represented as a real value on hand, directly correlated to the value of gold at the same era.

Now, when money is a little bit an information like entity (ok not exactly like the bitcoin, but similar to it in many aspects) ..."

I don't agree that gold has a "value" stored into the gold. There is nothing like a value "scewed into the physical things" - or build into the physical expression of whatever is used as money. Not in gold, nor silver, paper money, accounted money neither in bitcoins.

@William:

"I do not think that money is just something that we feel has value. Feelings are quite personal and depend on individual circumstances, so money would then have a very individual value dependent on personal circumstances."

Well, but a common understanding and a standard nominal given "value" which is broadly accepted ... is a common feeling.

That will end ... as soon as this common feeling is coming to a crossroad ... like a recession, a war, a "common panic" (bankrun) .. or whatever.

So, I would stay with the argument that it is onyl a human feeling - for unique products it is a unique selling price which results in this ... but for a widely accepted "standardized product" like money (paper, coins or even bitcoins) ... can keep a constant nominal value for a long time .. until the external condition changes ... until the common feeling changes ...

We can agree to disagree but economists have long shown the labor theory of value to be of limited use in measuring the size of the economy over time and I don't see how redefining the input into kw/hrs or whatever energy unit (BTUs, joules) changes this. I don't see how knowing that world energy usage is 474 exajoules in 2008 tells us everything we need to know about the size of the global economy in that year or what was happening during the very monetary financial crisis.

@Frédéric:

"To be a medium of exchange, money must be a storage of value.[...]

... because they think it is the best storage of value. So the extent of the role of money as a store of value clearly depends on circumstances. [...].

Though one needs to distinguish between money issued by central banks and other banks."

I would better say:

"To be a medium of exchange, money must be (able to be used as) a storage of value."

Because in reality is is sufficient ... (and the daily seen standard of a common trust in the value of money) ... that everybody who want to use money as a medium of exchange must have the confidence that he gets something for the "exchange medium" the next day.

Which is possible as long as the external conditions stay the same ... as long as the common understanding of a coulored piece of paper as a medium of exchange in a relation to the printed nominal value ... stays the very same.

It is not necessary to argue that really money has to "keep value" in its physical expression.

@John: Well, there I must agree then ... exept for your I did not say that this unit for the size of an economy does tell everything which is going on in an economy.

I did not say that ....

"... knowing that world energy usage [...] tells us everything we need to know about the size of the global economy in that year or what was happening during the very monetary financial crisis."

I would say that it can tell us something about the financial crisis, not everything.

And one last argument: As far as I know it is valid for basic economies without any technology that the value theory of labour is valid.

What I do is calculating the energy running all kind of machine in a virtual number of heads ... and so I get the number of heads working as the lowest common numéraire. ... and as a replacement of the heads working you can just use the energy they can deliver per head.

But this would be (if taken as a working unit) ... an absolute unit, stable over time, and physically measurable.

In the opposit of this is and GDP number ... that is always just relative ... and can by definition (or the absence of a definition) never be an absolute unit or scale.

And one more remark:

It is not the energy consumption in total ... it is only the energy used to produce all the common goods, products and to deliver the services which all are going to be brought to the market.

Which means: The energy to heat a house does not count for the amount of work done to produce ...

This is an important difference. ... But probably not a sufficient argument for you ... as I suppose ... ?

@Olaf, despite of what you and I believe, gold remains the standard value in our world.

When we have 'crisis' its price goes up, like today.

One should have clear idea about money-concept- unit of account and unit of exchange. whether it is expressed in terms gold/silver/ other metal/ paper is indifferent in broader sense.

@Demetris: Well, gold has been something that people liked for a long time ...

but I would not see it as a standard value at all. It very much depends from the external conditions also.

One day you will exchange all gold of the world for a lunch box and some frsh water ...

it depends ...

@Arjun: I am questioning the common understanding of money as a unit of account, since money is never absolute, but always relative.

So My intention is different of a normal money system. I do not take one of the parts produced inside the economy (paper money, gold coins, whatever) and try to find a total exchange sum by this.

My concept comes from a physical dimension - like a ruler measuring the total economy in one given physical real dimension.

That measuring scale then is totally stable over time - it is not exchange rate based or so ... it is a physical measurement of any given economy.

Olaf - sounds like you are trying to do what Barney Foran and David Crane did when they built their OzECCO model back in the '90's (at CSIRO in Australia). It is based on energy flows and embodied energy. Quoting:

"It is a systems dynamics representation of Australia’s national function based on the philosophy of embodied energy analysis. The structure of the national economy and the energy accounts have been integrated so that capital stocks are expressed in terms of petajoules of embodied energy. The activities within the economy have been expressed as energy flows, again in petajoules. In this way economic activity has been converted to physical activity which is consistent with the first and second law of thermodynamics. All economic transactions are represented by the physical transformations which underpin them. This representation is consistent with the long term physical processes which are central to the functioning of any modern economy"

Google "OzECCO" and you should be able to find a few papers.

Wow. It seems to be quite close to my theory, thanks a lot for this hint.

Probably yes, but we focus on the mean values in human economic history and by this approach I cannot find a more all time popular value than gold. I do not agree with it, but I cannot act like not seeing it.

@Demetris:

Citation:"... I cannot find a more all time popular value than gold. I do not agree with it, but I cannot act like not seeing it."

Well, but my intention is to do research in the real physical characteristics of the real nature of economics - not again in any value discussion.

This is totally outside of the kind of looking after the best common numéraire inside of the economic circle, the economic washing machine with the two circles rotating against each other.

You statement is that you cannot measure the dimension of anything with a unit, only defined from inside the object to be measured. Money is only defined from inside of all kind of economic doing ... not from outside.

All kind of measurements of GDP in any monetary unit can not say where the outside limit of growth, the outside limit of economic doing is. And there is one, as long as you not questioning the laws of thermodynamics.

The question therefore is:

How can I measure the dimension of any kind of economic doing by a unit which is not defined from inside that economy to be measured?

@Guy: I found this paper: (and others)

http://www.thesustainabilitysociety.org.nz/conference/2010/papers/Dale-Krumdieck-Bodger.pdf

(citation)

"Global Energy Modelling – A Biophysical Approach

Intended category: Limits to Growth

The standard economic approach to energy modelling is outlined and contrasted with energy models taking a biophysical approach. The latter incorporate thermodynamic and ecological principles and emphasise the importance of natural resources to the economic process. Neither the standard economic nor biophysical approach accounts for changing energyreturns-on-investment (EROI) due to declining resource-accessibility and technological learning, nor the capital intensive nature of renewable energy sources. These two factors will become increasingly important in the future as fossil fuel depletion continues and a transition to alternative sources occurs. A modelling methodology offering an extension to the biophysical approach is presented, which utilises a dynamic EROI function that explicitly incorporates both technological learning and declining resource accessibility. The methodology and main assumptions of the model are outlined and their validity is discussed. The model is calibrated using historical energy production data. Forecasts of future energy production from the model are presented and their policy implications are discussed."

(End of citation)

So, the data these researchers are working with are very similar to the data I would use for modelling australia.

But (still not read the full paper) I have some doubts now if the approach is really the same as my approach.

My intention is to give an alternative economic theory based on physical units as the defined core characteristic of all economic doing. It is work, but not only humans work but also all the energy flows through machines and all production processes.

The simple sentence: Whatever you want to do in any given economy - you have to do it.

And, following the laws of thermodynamics, that means that 100% of any possible doing in any economy possible needs energy to get done.

It does not matter what you do - but the sum of all doing is again 100% of the GDP ... or the total productively used energy flow through the economic doing of all kind.

Measure it, and you get the perfect inflation rate relation reference point.

Measure it, and you get a physical expression, dimension stable over time and for any kind of economy, even barter economies, for the real part of the two economic circles.

Measure it, and you get a unit to measure the true reference of the total money froating around in one year, formerly named GDP.

I do not want to value anything - I just want to add a measuring unit for economics, a physical based unit.

So, therefore I do not think the approach of Dale-Krumdieck-Bodger is the same.

Hi, Olaf,

Money is a concept of three paradoxes:

(1) it measures…but what exactly ?! And despite that what it measures (i.e. the so-called value or market value) isn’t quite clearly defined, this doesn’t stop the market or money value to be included in the metric system that all States are defined through (besides measures of length and vlume). You’re right, economics is far from an exact idea about value. Or, more exactly, there were Marxism and Marginalism – two currents of the same age (i.e. mid 19th century ) and geographical origin around Austria and German lands – that have got into a real polemics about, and there were socialism and liberalism behind, as respectively. Then, it was a kind of ‘draw’ match in economic thinking in that 19th century, but Marxism had the merit of helping an alternative economic system (to the market economy one) in the next century, at least for a couple of decades. In the last decade of the 20th century the market system was back, due to that its alternative Marxian system fall apart by itself.

(2) But value measuring isn’t the lonely money’s paradox. A second one regards that it is man-made for a long time, but not yet obsolete, history or just numismatics. On the contrary, money is as vivid as the Bible and no perspective of its abandon.

(3) Thirdly, money is both economy – i.e. solving the market value problem for the oldest times, whereas economics came up much later and for not yet making it at the same – and economics – i.e. a real experiment that is so rare in a science like economics and even more rare successful. Plus, quite never at this scale. More, an experiment born when there was no science to host it and belonging to a science that wasn’t yet born; on the contrary, there was yet long to expect it by.

Once these deep paradoxes stand, in my opinion no more wonder about where the money value is, what about value storage or is the exchange rate price of money or political decision.

Will you pardon my arrogance, but I cannot stop from inviting you to my book: ‘Money and Market in the Economy of All Times’, at Xlibris.co, Daartford and Bloomington, UK. I will be happy to provide you with an electronic copy of it.

Hi Liviu,

well, an electronic copy would be fine,Thanks a lot!

And you are right with the three paradoxes ...

And I would answer: Yes, money measures ... but all it can measure is only something relative ... since there is no defined real characteristic of economies as a reference for money.

(Something like that would be easy defined as long you have an economy producing just one good, like corn or wheat. .. then you can simply weigh the corn ... as a reference for the money system to pay all corn in total.)

And this problem I want to solve - or explain more in detail, since I laid down the explanation of Energy as the numéraire last year in my paper.

But that paper is so short that it does not answer the open questions in total. It just describes the principle as I define it. It does not explain nor prove it.

I'll e-mail you my book, but I frst prefer to send you just an empty message, just for a test. Answer, please, and the rest will be quite easy and quickly. Nice to meet you, Olaf!

What is money?

Money could be an official forgiveness from the President of Germany every time that he visits Greece: He goes to a place like Kalavryta, Distomon, Ligiades:

http://abcnews.go.com/International/wireStory/greek-president-presses-germanys-gauck-wwii-22801264

and ask from us to forgive Germany for what it did in WWar II in Greece. But every time we ask Germans about what they owe financially to Greece, they respond to us :

"We accept only the moral responsibility..."

So, money can be just an offical apply for a forgiveness...

So much happy to view have your expression regarding ''MONEY'' the need of present age from my point of view .

In this regard if not out of the way I am to offer my personal views.To me ''MONEY IS WHAT MONEY DOES is important (This is in the line with the purchasing power) not money itself.

Accumulation of Money for the external condition is necessary for our family & others.

But unfortunately quite often it becomes Evil under our closed eyes.This also become a social evil .At this stage , for a person it is very likely that it brings an invitation to a change Nature,-Temperament & the most important is his EGO.

If one keep this in mind becomes & Accumulation of money the light for the social Fabrics .It turns out to be a Blessings.

We should not forget that Money is not going to be a long time companion in our journey for cremation.

Kindly treat this as my personal view.

"There are three functions of money. Yes, that is what the books are telling us."

I don't agree. There are many more. In the article 'Bitcoin: A Look at the Past and the Future', I wrote:

'Money has always been seen primarily as a means for barter or payment facilitating the exchange of goods or services. It is a means for economic communication. By using money, barter becomes commerce thus stimulating the economy. Money is also a means to calculate and save (Van Gelder, 1986, G-14). In light of the discussion about the bitcoin, it is interesting to note the following (provisional) characteristics of money: generally coveted (useful and valuable), generally accepted, anonymous (unidentified owner), legal (value set by authorities), easily moved, long-lasting, divisible, of constant quality, set value, and recognizable (Polanyi, 1957, pp. 264-266; Van Gelder, 1986-2002, G-14). '.

I agree the transaction items we humans choose and have chosen throughout history, can be seen as a mental construct. Sometimes practical, sometimes incredible (like stones). ;-)

Consider a banana and a diamond.

You can eat the banana so the value is obviously inherent, but you cannot keep it for much longer than a week. You may like looking at a diamond but you cannot eat it, but in case you need something to eat, you are very likely to find someone to trade in your diamond for a banana. So the diamond does help you keep a value over time, which is rightly expressed the term "store value". Of course, this doesn't work for absolutely sure.  A situation may arise where trading in your diamond for a banana doesn't work.

Conclusion: Your problem is nothing to do with money but with value. Value is used in two meanings. One is giving you utility directly (banana), another is giving it indirectly by providing you with the power receive something, that will  give you utility (diamond).  

Well, I meant it in a more physical realistic point of view ... money in this view never contains of is any kind of value ...

in its real world characteristics money is really a medium of exchange - you hand it over to get something different for it.

But the rest is a form of use where not only the money is really doing the different kind of meanings or functions. For example: Saving of value ... nothing is safed inside money.

You always need a surrounding real world with products - for exchange the money for in the future. So, the saving of value is the continuously available presence of things ... to be exchanged for.

cite A.Hinziker: "Conclusion: Your problem is nothing to do with money but with value. Value is used in two meanings. One is giving you utility directly (banana), another is giving it indirectly by providing you with the power receive something, that will give you utility (diamond)."

I think I understand what you mean, that the discussion about the functions of value you can get from different kind of things should the real question ..

But I stick to my question because of my intention of questoning the existing definition of the "functions" of money.

And I see a problem with functons defined to be a function of money without any co-defined necessary condition which are not possible without the co-defined condition presene.

And as explained in my post before: Storage of value is not possible ONLY with money. Of course, you need a consistent outer condition of a "real world economy" ... otherwise there is no economic system in the future ... and money looses its value immediately.

And second: Money as a Unit of measurement is a huge problem - if there is no defined "mother value unit" (like the old origin of one kilogram or one meter). Money is therefore only a relative unit of measurement ... which opens the question: relative to ... what? The GDP? Where is the definition of the GDP in the real world?

That is my point ...

And a banana or a diamnond ... both does not have any value as a characteristic of the "thing itself". No matter if I like this or that more or not.

Would you agreee, that "feeling good" is of value? - Then one of the alternatives to measuring GDP may be interesting to you: Measuring time people spend in a (un)happy state. Nobel price winner Kahnemann suggests it: https://www.aeaweb.org/articles.php?doi=10.1257/089533006776526030

Yes, a feel good situation of course is of value ... but I think it is of a different kind of value,

Value can have many different meanings - ond one is to give a (measured) value of a part of economic systems.

This value is different to a value which I give to some situations named "feel good situations" ... such a value is in principle not limited or defined in its value, and i doubt it will ever be measurable on a defined scale. And happiness is not my focus ...

my focus is the physical dimension of economic systems - as a possible base for a definition of economic systems before adding some money cycling around to value the relative values of any existing good inside of the system.

Or better to say: It replayces the "basket of somehow choosen goods" (which is not at all a perfect basket ever) with a physical measured size of "all goods in one defined absolut and physical basket" (which is an objective and physical measured value and therefore absolute).

I think this is an interesting question. It can be addressed from different stanpoints.

i) the contrast between internal and external conditions (for the moment let's not discuss what they can be) explains the money illusion effect. Because of a lack of perception in some external, objective or real conditions, I continue to attribute to some constant (or lingering) value to money. This could indicate that the storage of value aspect of money has an "internal" anchoring. I've studied this aspect in several papers.

ii) But this could be simply related to a delay of adaptation of our  brain/mind to external objective conditions where money really get its value.

iii) On a plain level, money is a salient feature of our economic environment. Probably the most salient. it is a bit like, say, weight or heat in our physical environment. We usually do not associate weight of heat to a clear consciousness of gravity and molecules movements. We just have thes features of reality that pop up and that we isolate as natural (in fact only quasi-objective and mostly subjective) experiences. I think it is a bit the same with money. We psychologize it "too much", we isolate it from its objectiveexistence conditions. But would the economy work without any subjectivization of this sort? How would we realte to it if we did not constitute it as a series of partial subjective experiments, and possibly illusion (like money-illusion)?

"ii) But this could be simply related to a delay of adaptation of our brain/mind to external objective conditions where money really get its value."

"

I think it is a bit the same with money. We psychologize it "too much", we isolate it from its objectiveexistence conditions. But would the economy work without any subjectivization of this sort? How would we realte to it if we did not constitute it as a series of partial subjective experiments, and possibly illusion (like money-illusion)?

Does Money really have a storage of value function? Or is it just the stability of external conditions?."

I linke your points very much. Good remark!