Thursday, November 3, 2016

National-Gift-Certificates as an Analog to Money

I will begin this post by thanking Antti Jokinen for engaging in a very thoughtful discussion about the merits of comparing money to a gift certificate. While at first glance, the two instruments seem very different, upon closer inspection and appropriate scaling, the two instruments compare very well. Antti's skepticism coupled (with encouragement) helped bring the parallels and differences into focus.

This post is a response to Antti's comment "The problem I see with your approach is how to explain why we would call a piece of paper a "gift-certificate", when it entitles the holder of it to nothing else than being relieved of his tax obligation (or fines or other charges collected by the government). I do see some sense behind that kind of thinking, but there are many people who don't."

Yes, we need an explanation. We think we know what money is (or do we?) and a gift-certificate seems to have many differences from money.

I first wrote about the similarity of money and gift-certificates in my post "Money is Like a National Gift Certificate". That post was prompted by my observation that a hardware store gift certificate was a lot like money in many ways.

When I walked into that hardware store with my gift-certificate in hand, I wondered why I just didn't go over the the clerk and request she change it into money. It certainly would have been easier than walking around the store, looking for something that I wanted only marginally. Of course, the store wanted the sale, not the possibility that they would retire the certificate and I leave the store with THEIR money. (There might be a clue here)

Paper money is harder to characterize than a gift-certificate but let's look for some DIFFERENCES and characterize them:

1. The size of the acceptability footprint is hugely different. Money is nation wide but a gift-certificate is only store wide; but both have boundaries of acceptance.

2. The denomination is hugely different. Money can be any value if a check, a fixed value if a gift-certificate; but both have EXACT values on the traded instrument.

3. The source of the instruments is hugely different. Money can be created legally only by government, a gift-certificate is created by private entity; but both are created by unique human entities.

4. The range of items available for purchase is HUGELY HUGELY different. Money can buy anything, a gift-certificate can only buy things in the store;  but both can only buy things identified as being for sale.

The ownership of items for sale is hugely, hugely different. The issuer of money does not own the items that might be purchased using money while the issuer of a gift-certificate owns/controls the items that can be traded in exchange; but exchange is observed to occur. (This ownership difference may be related to government's ability to collect tax at each exchange (sales tax or VAT tax).

Now let's look at the many identical features of money and gift-certificates:

Both disappear (retired, or if you prefer, "recycled") when they are received by the issuing entity.
Both can be traded before being presented to the issuing entity.
Both have unlimited durability while (at the same time) both can be lost or destroyed by intentional action.
Both can (or could) be borrowed by either the issuing entity or third parties.
Both are usually created (issued) AFTER the issuer has received some physical good or service.
Both can be created (issued) as a gift without exchange of any physical good or service.

We began this post with the challenge of explaining how money could be considered as being a National-Gift-Certificate (NGC). While the differences between money and a gift-certificate are several, the differences disappear when the differences are scaled and adjusted for character of ownership. We need to scale the gift-certificate up and into a "National-gift certificate". After the scale-up is done, it is reasonable to argue that a National-Gift-Certificate is an analog for money.

In an early comment, Antti suggested that the footprint for a United States monetary system could be described as the "United States as a Big Store (USBS)". This is an excellent description that I have used several times since.

If we think of the United States as a Big Store, we can compare the value of money to the contents of that store. Of course only the items on sale could be purchased but the same condition is a restriction in a store issuing a gift-certificates. The value of USBS money would be dependent upon the ability of money holders to buy freely what ever they wanted and their desire to purchase.

We conclude by opining that we can not call money a "gift-certificate", the differences are too great. We need to call money a "National-gift-certificate" which is a scaled up, souped-up version of the familiar gift-certificate.

Thanks again to Antti. Your participation in this discussion is much appreciated.



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