Reply To: Relationship Between Money and Money Substitutes


Feel free to end the discussion if I begin to take up too much of your time.

Pushing the question further though, when we see someone appearing to redeem one item for another, how do we determine whether what they’re doing is redeeming a money substitute for money proper, or if they’re converting money proper into a money substitute to facilitate some exchange. If we see someone withdrawing physical dollars from their bank account for the purpose of frequenting a cash only establishment, how is that we can assert that he’s redeeming bank credit (money substitute) for physical dollars (money proper), instead of converting bank credit (money proper) into physical dollars (money substitute) to facilitate his transaction?

Your last paragraph, if I’m understanding it right, seems to suggest that the answer is that we would infer how he regards the item by context – that in the example I’ve given, if the person views their bank credit as “their money,” and physical cash is merely a form their money must take to facilitate a particular transaction, then for them, the bank credit is, in fact the money, and the physical dollars, the money substitute. Whereas by contrast, if someone were withdrawing physical dollars in order to hold them, we might say that for him, it appears the physical dollars are money, and the bank credit, merely a form their money must take to facilitate particular transactions. If this is true though, what would prevent the possibility of the relationship between a money and a money proper reversing. And perhaps my original framing of the question confused things. I don’t mean a reversal in a categorical sense, but just an empirical situation in which physical dollars, previously viewed as the money, begin to be regarded as merely a form that money must sometimes take to facilitate transactions, and where people instead view their checking account balances as their money. And if such a situation did appear to maintain, wouldn’t economists have to change to treating bank credit as money, and cash as a money substitute?