I am a complete newbie to monetary policy. I am wondering if stocks would be a good currency, there is no problem with the usefullness of the product like gold. I know I must be wrong here, but why?
"The plans differ; the planners are all alike"
-Bastiat
I can't see my local supermarket taking stock certificates as payment for my groceries. Stocks are not uniform, consistent, or redeemable on demand. In short they do not fit the defintion of money.
You're wrong because money isn't enforced, it arises on its own, and likely people wouldn't accept stocks as money. They may be used in individual transactions but will be directly transferred for something else, ie, I'll give you 1000 shares of company x for 500 shares of company y, or some other direct exchange. Money is something that arises on the market and is used for indirect exchange. In other words people only buy and hold it because it's a reliable and durable store of value that they can be reasonably sure other people will accept, because it arises as one of the most salable commodities on the market. Gold and silver arose to fill that role in the past, as have tea leaves, feather, shells, cows, etc. Stocks don't fit that definition because in our current context it's highly unlikely they would rise up to fill that need in society.
Hi ChaseCola.
I would phrase your question in the following way:
Why couldn't a mutual fund for example, issue a currency or notes based on its own portfolio of stocks? Or, theoretically, what is to prevent people from purchasing and trading certificates or notes of this nature?
I'm not expert enough to answer such a question, but you might be able to get a good answer by e-mailing Lawrence White who has written extensively on the subject of free banking.
Adam
"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)
i you want to buy the assets i am selling using your stock certificates... like a house or car... that would be a barter transaction.
so to answer your question. Stock certificates can be used as money... but it is not a "currency"
Let's apply that reasoning to a transaction a few hundred years ago. A man uses a portion of his stock of gold or silver to buy a house or a horse. By the above reasoning, a barter transaction.
Then we say, your gold or silver can be used as money, but it is not a "currency".
The stock certificates are not currency because they are bartered. The gold or silver is not currency because it is bartered.
Then what is currency according to this approach?
a gold certificate has an associated value. 1oz of gold etc.
a stock certificate is a claim to future profits... no intrinsic value
My understanding of Austrian economic theory, at least that of Mises, is that the term "intrinsic value" is not used. Only the term "subjective" value is used.
By this approach then, it would be inadmissible to say that a stock certificate doesn't qualify (as money, currency, etc.) based on its lack of intrinsic value.
The concept of intrinsic value must be from a theory other than Mises's.
The question would then be, based on Austrian economic theory, and its concept of subjective value, what disqualifies stocks, claims to stocks, or some stock derived claim or issuance, from being money or serving the same purpose as money? I think this question is still in line with the original poster's original question. What, by Austrian economic theory, rules out stocks absolutely from being money?
As far as I'm concerned, anything used for indirect exchange is "money". That is, anything that people accept, not for its own sake, but because they can use it to exchange for something else. Obviously, if people won't accept it, it's not money.
However, other qualities that people will mention, such as fungibility, convertibility, durability, portability, etc. help define what would make a better form of money. Thus, some forms of money may be useful only in very limited situations, or within a certain group or community, but useless elsewhere. For example, the use of cigarettes in prisons for indirect exchange. Outside of prisons, few people, if any, will find cigarettes to be a good form of money, especially when better forms of money are readily available.
Nothing rules out stocks from being money (again, in my opinion), but many factors make stocks a bad form of money, and thus, one that few people, if any, would be willing to use or accept as money.
Macsnafu:
I find stocks as money to be an interesting idea, but obviously a lot of people think it's a non-starter.
You write that many factors make stocks a bad form of money. By the standards you list above (fungibility, convertability, durability, portability, etc..), what makes stocks a bad form of money?
Well, besides the problem of getting people to accept stocks as money, perhaps the most important question is where do the stocks come from, and how would the supply of them be managed? Most other objections could, I think, be managed pretty well. Stocks could be printed in size and form like dollar bills are now, or, as is increasingly done, simply stored in stockbroker's databases electronically.
But stocks already serve the purpose of providing capital for businesses and being traded as an investment and measurement of faith in a company's activities. To convert stocks to money would undermine much of the purpose of stocks in the first place. So, you'd have to somehow divorce stocks from their purpose in order to be able to use them as money, and if successful, then why would a company issue stocks if it won't provide them with capital?
And then the supply of stocks--Stocks issued by one company? Or by any company? Or just by some certain set of companies? Corporations issue millions of shares of stock. What would be the limit or control to keep the "stock-money" from being easily inflated? Stocks are normally "backed" by the company that issues them, or by people's confidence in that company. Would blue-chip stocks thus be better used for money than smaller penny stocks?
While these problems might not be insurmountable, I do think the current source and purpose of stocks keeps them from being used as money except perhaps within a rather limited scale, so that their use as money doesn't overshadow their main purpose.