What Is Money Debate with Lyn Alden and George Gammon
What this covers
To get the rest of this conversation and a whole lot more, become a Eurodollar University member or DDA subscriber. You can find the information about those here: https://www.eurodollar.university/sales-page-1
Eurodollar University's conversations, Guests Lyn Alden & George Gammon
https://www.eurodollar.university Twitter: https://twitter.com/JeffSnider_EDU
#lynalden
Source description (no synthesized summary yet).
Money is fundamentally an emergent phenomenon defined by usability and circulation rather than a fixed supply, and the distinction between broad money and base money matters less than whether banks actually circulate credit through the system.
- Money solves the double coincidence of wants and emerges to serve commerce; competing forms of money with different levels of 'moneyness' are natural and healthy
- In a fractional reserve and modern ledger-based system, the critical variable is circulation (velocity) and bank willingness to expand balance sheets, not monetary aggregates
- Fed interventions like BTFP preserve bank deposits (anti-deflationary) but only matter if banks actually resume lending; supply without circulation is economically meaningless
This asset isn't compiled yet
You're seeing its claims, ranked. Compile it to build the argument threads, weight them, and check each claim against your library — the full view.
Money is an emergent phenomenon that arises to solve the double coincidence of wants problem in commerce, rather than being an object with inherent monetary properties—it emerges naturally across different societies and time periods to serve specific commercial needs.
“it's an emergent phenomenon meaning it comes up to solve a problem that's why different societies have have all kind of independently used different types of money”
Money is best defined not as a single object but as a spectrum of 'moneyness'—the degree to which something functions as a medium of exchange, unit of account, and store of value, with different assets occupying different positions on this spectrum depending on their liquidity, divisibility, portability, and salability.
“there's moneyness of different things that some things are money is not necessarily an either or it's not like money or not money it's it's there's varying degrees of moneyness”
Modern bank runs (like Silicon Valley Bank) are not physical runs with people withdrawing cash but electronic transfers of deposit liabilities from one bank to another via bank reserves, which is fundamentally different from Depression-era bank runs but often characterized identically by commentators.
“I think that The Listener needs to differentiate between uh different types of Bank runs like a modern-day bank run compared to uh the the bank run of the what was the movies in the the movie in the 1930s It's a Wonderful Life”
When the Federal Reserve bails out a bank (such as through the BTFP program), it creates additional bank reserves and prevents commercial bank deposit liabilities from being destroyed, which is anti-deflationary because it preserves the broad money supply that would otherwise collapse.
“if the FED comes in with btfp as an example they are creating additional Bank Reserves that is true in that process um but they're they're literally bailing out Banks so if we can say that broad money is a commercial bank deposit liability uh if it's preventing those Banks from going bust then it is definitely propping up M2 money supply”
Fractional reserve banking is fundamentally dependent on continuous circulation and the ongoing willingness of banks to make loans and refinance liabilities—the system is structurally similar to a game of musical chairs where it functions smoothly only while the music plays (credit is expanding).
“fractional reserve banking inherently based on a kind of a mismatch of promises they're saying to the depositors you can get your money at any time uh at least within banking hours and yet they know that a majority of those are in illiquid assets and at any given time there's way more claims for money than there are uh actual monetary units and so they need that circulation to keep going they need that music to keep playing”
William Stanley Jevons observed in 1875 that the monetary system had become so efficient at moving claims (via telegraph, undersea cables, and paper instruments) that physical gold rarely moved, only settling occasional imbalances—the system was leveraged 20-to-1, making it vulnerable if even 5% of claimants demanded actual gold.
“in 1875 when William Stanley jevans um uh wrote a book called money and the mechanism of exchange and he's kind of just analyzing the monetary system as it existed at the time...he's pointing out that their systems become so efficient for moving things around right so with the with the invention of the Telegraph and kind of the the the undersea cable and like you know transcontinental cables um as combined with all their various paper instruments he's pointing out that we can move all these claims for gold around so effortlessly that we we barely ever have to move actual gold only an occasional imbalances do we ever actually have to move physical gold”
During the Great Depression, the actual problem was not insufficient money supply but a breakdown in circulation—France and other gold-holding nations hoarded gold, preventing its circulation through the international system, which caused money to stop moving despite its physical availability.
“the 1930s the worst depression in maybe human history probably was there was plenty of money there was more than enough money in the world there was more than enough gold in the world to pay off all those liabilities what happened was was it stopped moving France hoarded all of its gold took a bunch of gold home put it in Paris and didn't allow anybody to access it”
Historical velocity data shows no strong correlation between velocity and inflation rates; the 1970s had more inflation but not higher velocity than the 1960s, suggesting velocity is not a reliable predictor or cause of price inflation.
“the 1970s did not have much higher velocity than the 1960s despite the fact that we had more inflation because velocity On Any Given say rolling five-year period um is just not that correlated with measures of inflation or even measures of of money supply growth”
In the current US financial system, a dollar is a direct liability of the Federal Reserve in either physical form (currency) or bank reserve form, and broader money supplies (M2) are built as fractional claims on top of this base layer of Federal Reserve liabilities.
“A dollar is a direct liability of the Federal Reserve either in physical form or in bank reserve form um and then there's various IUS that are built on top of this that we consider our money right”
The Federal Reserve has the capability to directly impact M2 money supply through its actions, though not all of its actions do so—this is a point of agreement across the speakers despite surface-level disagreement about whether the Fed 'prints money'.
“if I ask Lynn can the Federal Reserve impact M2 money supply what would you say yes they can not all their actions do but yes they they have the capability to do that”
Fed bailouts of failing banks send a moral hazard signal to surviving banks that encourages them to take more risk, knowing they have implicit government backing—this increases lending willingness across the banking system even if the bailed-out bank itself does not resume lending.
“if the FED comes out and bails out XYZ bank that bank might not lend because they're in Dire Straits but for the rest of the banks that sends a signal that hey guys don't worry about it you can go ahead and take more risk and therefore they will lend more than they otherwise would have”
When circulation breaks down (money stops moving), banks become defensive and call in loans rather than expand balance sheets, which further contracts the money supply and credit availability—circulation collapse leads to credit contraction independent of central bank policy.
“when circulation stops IT interrupts the operations of the banking system and intermediation which then leads to all of these other problems...Banks become less confident and so they're like okay I can't expand my balance sheet or broad money maybe I actually have to start calling in loans just as a defensive mechanism”
Broad money is defined as commercial bank deposit liabilities—the sum of all customer deposits held at banks, which represents the most usable form of money for consumers and businesses.
“I think what most people consider money is just what is Commercial Bank deposit liability”
During the Great Depression of 1929-1930, even if the Federal Reserve had introduced additional bank reserves, it would not have prevented the crisis because banks were so risk-averse that they would not lend regardless of reserve availability—supply-side interventions failed due to demand-side (behavioral) problems.
“even the Federal Reserve introduced a level of Bank Reserves would that have made a difference I mean Milton Freeman said it would have I don't think so I think at that point Banks were already risk averse to the point where the whole system was going to shut down anyway”
In 2008, even when the Federal Reserve offered multiple channels of emergency liquidity (primary dealer credit facility, bank reserves, overseas dollar swaps), the banking system refused to continue operating normally because of balance sheet capacity constraints, not confidence or liquidity shortage.
“had the Federal Reserve introduced even more Bank Reserves or unsterilized Bank Reserves from all their Taff auctions and overseas dollars swots would that have convinced the banking system we're standing behind you we've got the primary dealer credit facility Well it didn't work it didn't lead the banking system to continue operating the same fashion”
Official velocity statistics calculated as (nominal GDP / M2 money supply) have been unusable and unreliable for decades because they rely on incomplete money supply definitions that exclude global eurodollar flows and other off-ledger monetary activity.
“the calculations of velocity have been unusable for decades I mean half a cent because they don't apply to anything that's real um problem with the calculations of velocity is they rely on bad money supply numbers M2 is not an exhaustive not exhaustive and comprehensive of the entire monetary system because you have to think globally”
The current financial system has evolved beyond traditional fractional reserve banking into a pure ledger money system where banks don't need to hold reserves at all—they simply create liabilities on a ledger, and the system functions based entirely on the willingness of participants to circulate credits.
“I think there's a very big distinction here between the traditional fractional Reserve System and what I call the euro dollar era which went beyond it which in many senses eliminated the reserve to begin with so it's no longer fractioning a reserve it's just creating claims it's basically a ledger money system pure Ledger money system”
When a fractional reserve bank faces a liquidity crisis (11% of deposits demanded when they hold 10% in base money), they have limited options: borrow from other banks, use collateral, or default—if the system is highly leveraged, default becomes likely.
“if you have a fraction Reserve set and um you know there's a couple options a bank can do if let's say they have 10% of their of their deposits held up in the actual base unit that those deposits are denominated in if they get 11% of people come back and want their money at once the bank has a few options they can you know they can for example use some of their less liquid collateral and borrow from another bank”
The historical precedent for Federal Reserve interventions comes from the 1907 banking panic, when the Clearing House Association issued quasi-money tokens (Clearing House debt certificates) to signal bank solvency and allow banks to maintain lending despite liquidity stress.
“that's the idea behind Bank Reserves from the very beginning you go back to the 1907 Panic which is where all this framework came from the idea of using Clearing House debt certificates as an interbank token to send a message to other dealer Banks”
If you have flat M2 money supply and sharply declining velocity, the most likely outcome is disinflation or brief deflation, similar to what occurred in early 2020 during the liquidity shock.
“if you had flat money Supply and sharply declining velocity that's generally indicative of a like a liquidity shock like you would see for example during early 2020 that that period would probably be characterized by disinflation or very brief deflation”
The modern monetary system's reliance on just-in-time interbank funding (where banks order reserves as needed from wholesale markets rather than holding them) is extremely efficient during normal times but creates catastrophic fragility during liquidity events.
“it reminds me of even today just in time inventories because that's what it is it's expensive it's cumbersome it's inefficient to have to hold reserves it's so much better if I can just if I need to if a customer I didn't expect comes in today and takes a little bit more out of my Vault I can order funds from somebody else in the wholesale Marketplace I don't need to have idle funds sitting in my Vault”
Airline frequent flyer reward programs function as an emergent, parallel monetary system with their own supply controls, redemption mechanisms, and designated partners—representing one of the largest undiscussed monetary systems in the world.
“one of the biggest monetary systems in the world right now is Airline rewards you don't think that's a monetary system but it is a enormous monetary system which there is a supply of Rewards Points it isn't just about flying on a particular Airline they're used for actual real world purchases all throughout the commercial system”
Better proxies for actual monetary circulation than velocity include gross settlement volumes on systems like Fedwire (which processed approximately $1 quadrillion in settlements annually) and CHIPS (Clearing House Interbank Payments System), which reveal circulation magnitude more accurately than velocity calculations.
“fedwire processed about one quadrillion in Gross settlements last year right and that's that's gross money kind of being sent around between different entities and that's a that's a very different measure than velocity as we know it”
The real question about Fed bank bailouts is not whether they preserve M2 in the short term, but whether bailing out a bank that won't subsequently lend and recirculate money is economically meaningful—if the bailed-out bank doesn't resume its intermediation function and lending activity, then preserving it adds no value to the system.
“I said yeah that's that's probably true um but the issue that I have is whether or not that's meaningful... if the FED comes in and bails out a bank that's just going to sit there and do nothing anyway might as well let it go out of business because you bail out the bank and it doesn't make any more loans what was the point in bailing out the bank it doesn't recirculate money through the system”
When analyzing monetary conditions, the most important question is not 'how many chairs' but 'is the music playing,' because during expansion, the number of chairs is nearly irrelevant; what matters is circulation and willingness, not quantity.
“I think what I'd add to this a couple things uh first and foremost it it begs the question do the chairs matter if the music is still playing all is playing not not particularly”
Because we lack comprehensive statistics defining the actual global money supply, circulation, and liquidity, the best approach is to examine what markets themselves are telling us through prices and spreads rather than relying on macro statistics.
“that's why I look at what markets are telling us because regardless of whether we can Define what money is the actual usable monetary system or the actual usable money in the monetary system is being used by these participants and they're giving us a sense of what it is even if we can't quantify it in a specific term or calculate a velocity number we do have an idea what money might be doing in the shadow that we can't see because the system itself gives us that information”
Historical gold-based monetary systems were desirable not because gold was the 'best' money objectively, but because gold objectively outperformed other monetary candidates at solving specific functional requirements (divisibility, portability, durability, salability).
“the reason why people use gold for so long was because it was objectively better at certain functions that money needs to do uh accomplish but in the end money is not an object unto itself with its own purpose purpose it is an emergent phenomena”
The Federal Reserve has a dubious track record at actually influencing bank behavior through Reserve policy—despite Fed efforts to signal support and inject Reserves, banks' lending behavior depends more on their balance sheets and confidence than on Fed Reserve availability.
“does the Federal Reserve has have a pathway to influence Bank Behavior they certainly think that they do I think the the results are relatively dubious in that regard”
In a fractional reserve system, the key question is what determines bank willingness to expand balance sheets and engage in credit intermediation—is it supply (amount of available base money), psychology, or something else?
“does the amount of chairs um because the idea is how do we get Banks to do what what they're doing how do we in a fraction Reserve System we need them to constantly do their intermediation functions what are the factors that determine their willingness to be able to to play in that system is it is it the music that's playing is it the number of chairs that they that they see uh in the in the game what is it that keeps Banks engaged”
The free market should be allowed to choose what it uses for money without government restriction, and whatever the free market chooses will be optimal regardless of expert opinions about which monetary form is 'best'.
“we definitely all agree on is the free market should be able to choose what it wants to use for money and that's that's going to be the best regardless of what our opinions are whatever the free market chooses that's what's definitely going to be the best if it's allowed to choose”
Competitive monetary systems should be embraced as beneficial because competition between monies is inherently healthy and drives innovation to fill gaps in functionality.
“as long as there's a need and a desire there's a there's a there's a hole in the system or there's a you know there's a there's a desire of commercial agents and participants to undertake something like that then there will always be competing systems and I think that's something that should be embraced competition is always good”
The speaker acknowledges that they don't like the current system in which large banks have enormous political and economic influence and control monetary circulation, but they accept this as an institutional reality that must be understood rather than wished away.
“I don't like having you know these big Banks the enormous political power and economic influence but that's we have to realize that's the way it is”
A person in Ecuador successfully bribed a police officer using cell phone minutes instead of cash, demonstrating that cell phone minutes functioned as money in that specific context and time.
“I remember one time when I was in Ecuador I I got pulled over by a police officer that just just wanted to be paid off and I I didn't have any cash on me but the person that was with me just paid him off in cell phone minutes yeah there you go there's money right there right”
The full conversation between the three speakers covered topics beyond what's shown in the free version, including discussion of what comes after the eurodollar era and how the system might transition from current conditions to a different monetary future.
“what you've just seen is only half of it actually not even half of it the the rest of the conversation the majority of it we got into topics like what comes next after the euro dollar era and how do we get between where we are today and where we want to go tomorrow”