Dear all,

This letter may be a little long this week, for which I apologise in advance. If you would like to watch an informative video instead, I suggest this one.

I’ve been trying to write about bond yields either for a month or a decade, depending on when you begin counting. I worked as a financial journalist between 2014 and 2016, and much of that time was spent on looking at the way markets behave.

A colleague of mine once told me that the best way to tell whether the markets don’t know what they’re doing is to watch them blame each other. The stock market is down because of bond yields. The dollar is weak because of oil. Every movement is because of some other movement.

But to be honest, there’s something much trickier than bond yields that underlies all of this, and that’s money.

During my master’s, I took a course on the history of economics. Costas Lapavitsas, who took that course, said - money seems very simple. We use it every day and we know how to use it. But when we start thinking about it, we realise that money is one of the most complicated things in the world.

Why is this the case?

The classical economists - Smith, Ricardo, Marx - will tell you that there are two kinds of value. There is value in use, and there is value in exchange. Use-value is the value of the thing when it is put to the purpose for which it is made (or maybe some other purpose, but let’s not quibble). Exchange value is what you can get for the thing if you give it to someone else.

Money is the physical thing which has a use-value in exchange.

(Never mind right now about barter, and never mind about price. All I’m saying right now is that if we agree that things have value because we can use them, and that things also have value because we can exchange them, then we have made this thing called money so that we can use it to exchange one set of things for another.)

This is important because long before we get to bonds - which is to say debt - we have to think seriously about what it means to have and use money.

Often neoclassical economists like to treat money like it’s purely an illusion that makes the world easier to live in. If I sell you a mango for ten rupees, and I buy ten oranges for a rupee each (a mango being worth, of course, ten oranges at the very least) then money has no important part to play in the way we understand this transaction. What has “actually” happened is that I have exchanged one mango for ten oranges.

But anyone who has actually bought or sold anything in a market - a real one in which real things are bought and sold - can tell you that transacting with money is perhaps the most important part of what is happening, because you have exchanged the thing that you could use to buy anything in order to gain this thing which you can only use for a few (if not just one) thing.

Without going too deep into what this means for most things, the reason I want to talk about this is that you can’t meaningfully engage in understanding what debt is without first engaging with money, because debt is simply a promise regarding money. And we simply don’t think enough about what money really is.

Because this is not the Economics of Why I’m Right Newsletter, next week I will avoid bonds and write about what I’m reading instead.

Cheers,

mvs