a/h: the money function. Uncertainty, connection & the law.

Lamont, Dougald (2026): a/h: the money function. Uncertainty, connection & the law.

Abstract

Given that money is so ubiquitous, it is surprising that neoclassical macroeconomic theories, among other monetarist schools, do not model money: it is assumed. As a consequence, their theories often analyze the economy by a kind of mathematical analogy, This manuscript starts with understanding money by describing the public and private legal processes by which it is created. This reveals that all money is created as specific kind of legal agreement: a forward contract. This concept of money is fundamentally different than the monetarist theories. It is not a commodity based on past work, but an agreement from fulfilling future promises. Archaeological evidence from Mesopotamia that pre-date the alphabet suggests this is what money has always been. Such contracts were the first examples of writing. To help understand mechanisms at work in generating value based on uncertainty and partial information, I provide a philosophy of money that draws the links between Keynes’ concept of probability, a/h, and Claude Shannon and Norbert Weiners’ formulas and concepts of information as entropy. I’ll then examine some of the implications and consequences for monetarist macroeconomics, including on what could be done differently to assess and address the many crises besetting the world.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary Sovereignty; Private Credit Creation; Forward Contracts; Chartalism (State Theory of Money); Debt Deflation; Monetarist Critique; FIRE Sector; Information Theory; Entropy (Economic); a/h Probability; Cybernetics; 80/20 Power Law (Pareto Principle); Fractal Distribution; Legal Bond; Cuneiform/Mesopotamian Accounting; Double-Entry Bookkeeping; PolyCrisis; Rule of Law; Greek Economic Crisis; Hyperinflation (Germany/Venezuela); The Great Depression (Canada)
• Subjects: A - General Economics and Teaching > A1 - General Economics; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B52 - Institutional ; Evolutionary; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C60 - General; D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; G - Financial Economics > G0 - General > G01 - Financial Crises; H - Public Economics > H6 - National Budget, Deficit, and Debt; H - Public Economics > H6 - National Budget, Deficit, and Debt > H60 - General; H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt ; Debt Management ; Sovereign Debt; K - Law and Economics > K0 - General

References

Bell, Stephanie A. "Do Taxes and Bonds Finance Government Spending?" Levy Economics Institute Working Paper No. 231, 1998. https://www.levyinstitute.org/pubs/wp/231.pdf

White, William. Why The Monetary Policy Framework in Advanced Countries Needs Fundamental Reform. Working Paper No. 210, Institute for New Economic Thinking, 2023. https://www.ineteconomics.org/uploads/papers/WP_210-White-Monetary-Policy.pdf

Campbell, Jeremy. Grammatical Man: Information, Entropy, Language and Life. New York: Simon & Schuster, 1982.

Keynes, John Maynard. A Treatise on Probability. London: Macmillan, 1921.

Keynes, John Maynard. The General Theory of Employment, Interest and Money. London: Macmillan, 1936.

Robbins, Lionel. An Essay on the Nature and Significance of Economic Science. London: Macmillan, 1932.

Shannon, Claude E. "A Mathematical Theory of Communication." Bell System Technical Journal 27, no. 3 (July 1948): 379–423. https://doi.org/10.1002/j.1538-7305.1948.tb01338.x

Wiener, Norbert. Cybernetics: Or Control and Communication in the Animal and the Machine. New York: John Wiley & Sons, 1948.

Knapp, Georg Friedrich. The State Theory of Money. London: Macmillan, 1924. First published as Staatliche Theorie des Geldes, Leipzig: Duncker & Humblot, 1905.

Minsky, Hyman P. Stabilizing an Unstable Economy. New Haven: Yale University Press, 1986.

Mitchell-Innes, Alfred. "What Is Money?" Banking Law Journal 30 (May 1913): 377–408.

Mitchell-Innes, Alfred. "The Credit Theory of Money." Banking Law Journal 31 (January 1914): 151–168.

Wray, L. Randall. Understanding Modern Money: The Key to Full Employment and Price Stability. Cheltenham: Edward Elgar, 1998.

Chang, Ha-Joon. Economics: A User's Guide. London: Pelican Books / Penguin, 2014.

Friedman, Milton. The Optimum Quantity of Money and Other Essays. Chicago: Aldine, 1969.

Keynes, John Maynard. "An Open Letter to President Roosevelt." The New York Times, December 31, 1933. https://www.nytimes.com/1933/12/31/archives/from-keynes-to-roosevelt-our-recovery-plan-assayed-the-british.html

Marshall, Alfred. Principles of Economics. London: Macmillan, 1890.

Mehrling, Perry. "MIT and Money." History of Political Economy 46, Supplement (2014): 177–197. https://doi.org/10.1215/00182702-2716148

Samuelson, Paul A., and William D. Nordhaus. Economics. 18th ed. New York: McGraw-Hill, 2005.

Schumpeter, Joseph A. The Theory of Economic Development. Cambridge, MA: Harvard University Press, 1934.

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. London: W. Strahan and T. Cadell, 1776. Cannan ed. New York: Modern Library, 1994.

Hobbes, Thomas. De Corpore. London, 1655.

Plutarch. Life of Theseus. In Parallel Lives. Translated by John Dryden. Revised by Arthur Hugh Clough. http://classics.mit.edu/Plutarch/theseus.html

Burton, Robert. The Anatomy of Melancholy. Oxford: Henry Cripps, 1621. Modern ed. edited by Holbrook Jackson. New York: New York Review of Books, 2001.

Durant, Will, and Ariel Durant. The Lessons of History. New York: Simon & Schuster, 1968.

Kindleberger, Charles P. "The Economic Crisis of 1619–1623." Journal of Economic History 51, no. 1 (1991): 149–175.

Macaulay, Thomas Babington. The History of England from the Accession of James the Second. Vol. 4. London: Longman, Brown, Green, and Longmans, 1855.

Malynes, Gerard de. The Maintenance of Free Trade. London, 1622.

Ascah, Robert. Politics and Public Debt: The Dominion, the Banks and Alberta's Social Credit. Edmonton: University of Alberta Press, 1999.

Bank of Canada. Annual Report 1936. Ottawa: Bank of Canada, 1936.

Fullerton, Douglas H. The Bond Market in Canada. Toronto: Carswell, 1962.

McIvor, R. Craig. Canadian Monetary, Banking and Fiscal Development. Toronto: Macmillan, 1958.

Neufeld, E. P. Bank of Canada Operations and Policy. Toronto: University of Toronto Press, 1958.

Plumptre, A.F.W. Central Banking in the British Dominions. Toronto: University of Toronto Press, 1940.

Ryan-Collins, Josh. "Is Monetary Financing Inflationary? A Case Study of the Canadian Economy, 1935–75." Levy Economics Institute Working Paper No. 848, 2015. https://www.levyinstitute.org/pubs/wp/848.pdf

Ryan-Collins, Josh, Tony Greenham, Richard Werner, and Andrew Jackson. Where Does Money Come From? A Guide to the UK Monetary and Banking System. 2nd ed. London: New Economics Foundation, 2012.

Watts, George S. The Bank of Canada: Origins and Early History. Edited by Thomas K. Rymes. Ottawa: Carleton University Press, 1993.

Bartlett, Bruce. "Why the GOP Tax Myth Won't Die." The Washington Post, September 28, 2017. https://www.washingtonpost.com/news/posteverything/wp/2017/09/28/i-helped-create-the-gop-tax-myth-trump-is-wrong-tax-cuts-dont-equal-growth/

Bernanke, Ben S. "Deflation: Making Sure 'It' Doesn't Happen Here." Speech to the National Economists Club, Washington, D.C., November 21, 2002. Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm

Fawley, Brett W., and Luciana Juvenal. "Why Health Care Matters and the Current Debt Does Not." The Regional Economist, Federal Reserve Bank of St. Louis, October 2011. https://www.stlouisfed.org/publications/regional-economist/october-2011/why-health-care-matters-and-the-current-debt-does-not

Greenspan, Alan. Testimony before the Committee on the Budget, U.S. House of Representatives, 105th Congress, 1st Session, January 21, 1997.

Library of Parliament (Canada). "How the Bank of Canada Creates Money Through Its Asset Purchases." HillStudies Publication No. 2015-51-E. Prepared by Brett Stuckey, Penny Becklumb, and Mathieu Frigon. Ottawa: Library of Parliament, May 19, 2021. https://publications.gc.ca/site/eng/9.956193/publication.html

McLeay, Michael, Amar Radia, and Ryland Thomas. "Money Creation in the Modern Economy." Quarterly Bulletin 54, no. 1 (2014). London: Bank of England. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

Turner, Adair. Between Debt and the Devil: Money, Credit, and Fixing Global Finance. Princeton: Princeton University Press, 2015.

Budge, E. A. Wallis, trans. "Translation of the Hieroglyphic Text of the Decree of the Priests of Memphis." In The Nile: Notes for Travellers in Egypt, 9th ed., 199–211. London: Thomas Cook and Son, 1905. Metropolitan Museum of Art. "Tablet Documenting Discharge from a Silver Debt, with Clay Envelope." Accession nos. 66.245.16a–b. Kültepe (ancient Kanesh), ca. 1900–1800 B.C.E. https://www.metmuseum.org/art/collection/search/329081

Schmandt-Besserat, Denise. "The Envelopes That Bear the First Writing." Technology and Culture 21, no. 3 (July 1980): 357–408. https://doi.org/10.2307/3103153

Herzog, William R. Parables as Subversive Speech: Jesus as Pedagogue of the Oppressed. Louisville: Westminster John Knox Press, 1994.

Tett, Gillian. "The Hidden History of the Liberty Bell and Lady Liberty." Financial Times, December 14, 2018. https://www.ft.com/content/dd02e4a8-fda5-11e8-aebf-99e208d3e521

Benes, Jaromir, and Michael Kumhof. "The Chicago Plan Revisited." IMF Working Paper WP/12/202. Washington: International Monetary Fund, 2012. https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

Hanke, Steve H., and Nicholas Krus. "World Hyperinflations." In The Handbook of Major Events in Economic History, edited by Randall E. Parker and Robert Whaples. London: Routledge, 2013. Also available as Cato Working Paper, 2012. Keynes, John Maynard. The Economic Consequences of the Peace. London: Macmillan, 1919.

Keen, Steve. "1,000,000 Economists Can Be Wrong: The Free Trade Fallacies." Debt Deflation (blog), September 30, 2011. https://www.debtdeflation.com/blogs/2011/09/30/1000000-economists-can-be-wrong-the-free-trade-fallacies/

Bank of Canada Act, R.S.C. 1985, c. B-2. https://laws-lois.justice.gc.ca/eng/acts/b-2/page-1.html Constitution Act, 1867 (British North America Act, 1867), 30–31 Vict., c. 3 (U.K.). https://www.justice.gc.ca/eng/rp-pr/csj-sjc/constitution/lawreg-loireg/p1t13.html Canada. Department of Finance. "Legal Terms and Conditions for Government of Canada Domestic Treasury Bills." March 30, 2015. https://www.canada.ca/en/department-finance/programs/financial-sector-policy/securities/legal-terms-conditions-domestic-debt-securities/treasury-bills.html Interest Act, R.S.C. 1985, c. I-15. https://laws-lois.justice.gc.ca/eng/acts/i-15/page-1.html

Brander, James A. Government Policy Towards Business. 5th ed. Toronto: John Wiley & Sons, 2013. ISBN 978-1-118-71740-0.

Harvard Theological Review footnote [2]: "River Ordeal in Israelite Literature." Harvard Theological Review 65, no. 1 (January 1972): 27–39. https://doi.org/10.1017/S0017816000000729

EBSCO Research Starters. "The Great Depression: Canada." 2024. https://www.ebsco.com/research-starters/history/great-depression-canada