Saturday, 23 February 2019


Moldbug calls money the bubble which doesn't pop. It is a bubble because nobody values it for its own sake, people only purchase it because they intend to sell it to someone else. (Unlike a retailer, who purchases things he doesn't intend to use, but sells them to people who do intend to use them.) Or some people do value it for its own sake, but the market price is far above what it would be if only those people were purchasing it. (For example, gold, which does have uses in electronics and medicine. It is useful as jewellery, but historically it is desired as jewellery because it is money.)

Money bubbles can pop. Sometimes a particular currency will "de-monetise". But they don't have to. There is no reason why a bubble can't keep going indefinitely, with the price levelling off well above the use-value.

The art bubble has been going for hundreds of years with no expectation of popping. The Mona Lisa is a scarce collectible. Its market value is well above that of identical copies, even though identical copies have identical use-value.

I call this "bubbleicity". Money has bubbleicity. Famous artworks have bubbleicity.

The cost of producing the artwork sets the floor price (which could be zero). The scarcity of its provenance can push the price above that. Or to look at it the other way around, the scarcity of gold sets the floor price of jewellery, and then there is a small premium for the design and workmanship (which could be zero).

People sometimes argue whether money is valued because it is a medium of exchange, or because it is a store of value. But you can't have one without the other. You can't have a medium of exchange unless it can store value across time. And you can't have a store of value unless you can exchange it at a future date.

In practice, people may use several commodities as money. They might keep gold in their vaults, for big transactions, and copper in their purse, for small transactions. But that doesn't mean one is the store of value and one is the medium of exchange. They are both stores of value and both media of exchange.

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