The Payment System / Betalningssystemet John-Erik Janson, utgivningsår: 2003 Detta verk skyddas enligt lagen om upphovsrätt (URL 1960:729). (1993:1212) (1994:193) Copyright © 2003 by John-Erik Janson All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. ISBN 91-8781227-4 THE PAYMENT SYSTEM AND THE CONCEPTS SUPPLY AND DEMAND (English edition of ´Betalningssystemet och begreppen utbud och efterfrågan´, Nov. 2000). John-Erik Janson 2003 This Acrobat PDF file is a copy of the original printed version, that is available at selected university libraries. The original printed version was printed in Gothenburg, Sweden December 2003 by Intellecta DocuSys. PREFACE. 4 PART 1. THE PAYMENT SYSTEM. CHAPTER 1. THE DEVELOPMENT OF THE ECONOMY, PAYMENT METHODS, AND PAYMENT SYSTEMS. a. The Development of the Economy and 9 Payment Methods. b. Distribution, Payments, Transactions, 10 and Payment Systems. c. Different Types of Payments and 11 Transactions. d. The Actors of the Payment System. 12 CHAPTER 2. MEANS OF PAYMENT, DIFFERENT TYPES. a. Different Types of Payment Systems. 17 b. Payment means, general. 17 c. Banknotes and Coins, Check and Giro 18 Means. d. Savings and Long-Term Deposits. 20 e. Bank Checks, Money Orders and so on. 23 f. Account Cards. 24 g. Cash Cards. 26 h. Automatization of the Payment System 27 CHAPTER 3. PAYMENTS AND TRANSACTIONS. a. Transaction -, Profitability - , Liquidity -, 36 and Solidity motives. b. Different Types of Payments. 39 c. Importance of Different Types of Money. 41 CHAPTER 4. THE ACTORS OF THE PAYMENT SYSTEM AND CHANGES IN THE VOLUME OF MONEY. a. The Central Bank and the Issue of 47 Banknotes. b. The Process of an Influx of Banknotes 48 and Coins. c. The Active Role of the Cash-holders. 53 d. Who Creates Money? 56 CHAPTER 5. THE VELOCITY. 60 CHAPTER 6. THE TRANSACTION VOLUME AND THE 70 PAYMENTS FOR GOODS AND SERVICES PART 2. THE CONCEPTS SUPPLY AND DEMAND. CHAPTER 7. SUPPLY AND DEMAND AND THEIR 76 CHARACTER.. CHAPTER 8. THE SUPPLY OF AND THE DEMAND 91 FOR MONEY a. Division of the Material. 91 b. Transaction Types 1 – 16. 91 c. Transaction Types 17 – 28. 95 d. The Transaction Types 29 – 32. 98 e. Financial Transactions and the Role of Interest. 99 f. Summing up of the Division. 103 g. A Comparison Between Friedman´s 104 Concept and that of the Quantity Equation. i. Value Preserving Capacity Respectively 111 Payment Capacity. j. The Role of the Velocity 112 k. Friedman´s Formula 7. 112 l. The Importance of the Factors. 113 APPENDIX APPENDIX 1 To the chapters ´Means of payment, Different Types´ and ´Payments and Transactions´. 123 DIFFERENT TYPES OF PAYMENTS AND TRANSACTIONS. APPENDIX 2. To chapter 3 ´Payments and transactions´. 128 DIFFERENT TYPES OF PAYMENTS AND TRANSACTIONS. APPENDIX 3. 137 To the chapter 5 `The Velocity. TYPES OF VELOCITY. APPENDIX 4. 138 To the chapter 7 ´Supply and demand and their nature´ and chapter 8 ´The concepts supply of and demand for money´. A STUDY OF THE VALUES OF THE VARIABLES OF THE QUANTITY EQUATION. LITERATURE. 145 PREFACE. about the absolute main part of my theories having the future before them. I think that many will be surprised I have read and carried out research in how much of them that will hold their ground, if they political economy for30 years following my really give them a critical and impartial study. For economist examination at the Gothenburg School of those who are firmly fixed in current conventions, Economics in1964 (about 10 working years effective they are surely indigestible, and I meet sometimes working time). Earlier in1973 I wrote people who regard me as a fool, which does not worry ´Kvantitetsteorin, utkast till en studie` (The Quantity me.(2). Bearing in mind all contradictions and non- Theory, draft for a study). The paper was then conformity with reality in the current theory building, distributed to economists and scientific libraries in the I can take such reactions with composure. The defects Nordic countries. I now find some 30 years later that in my propositions are of rather little consequence my conclusions then keep up to a very great extent, compared with the basic system faults in the which can hardly be said about many works on dominant theory buildings. I have anyway received so political economy which have won great approval. I many positive comments that I feel rather hope therefore that I shall be able to publish the work comfortable. The time is now also much more mature largely unchanged after minor adjustments. than it was in the seventies, when I wrote my earlier My new work deals with the key role that work. The economics is now characterized by greater the payment system plays in the national economy and realism than 25 years ago. To take only one example. with the basic elements of this economy. Both works In the sixties and the seventies the policy of the present a critical examination of parts of the now economists and the authorities seemed to a great dominant theory building, which I find indefensible. extent to mean limiting the credit volume in the This has such great defects, suffers of such great society. It is indeed ironical that all these attempts to system faults that I find it surprising that these faults influence the inflation development have failed, while and defects have not been critizised earlier. Especially to-day, when all credit restrictions have disappeared in this criticism is true for the demand concept and the our internationalized society, we have managed to view of the role of the bank system in the price reach a relative price stability. building process. I find it obvious that SEK 1.000 in But even Milton Friedman and his notes direct from the central bank or via the bank followers have failed; their theories are characterized system is purchasing power and potential demand by dualism, contradictions, and lack of conformity exactly as much as SEK 1.000 in income and expenses with facts. The idea that the theories of the economists for Ludvig Svenson´s curtain factory (which is often often have been airy and without contact with reality, used as an example) and in both cases the SEK 1.000 is also shown by themselves sometimes admitting that note continues to make purchasing power and create they do not understand each other. As Friedman wrote espenses, as long as it has not been withdrawn from in polemic with James Tobin in ´Milton Friedman´s the market. I find also that the commercial banks and Monetary Framework´, p. 143: "Much of the rest of the bank system do not at all play the key role that the Tobin´s criticism of my article leaves me utterly economists have given them, they play on the baffled. We seem to be talking at cross-purposes - I contrary a very modest role, while what other disagree far less with the substance of what he says economists have called ´cash-holders´ or ´cash- than with the views that he attributes to me - which managers´ exert a great influence both on potential repeatedly seem to me in clear and present conflict purchasing power and its use as transactions and with what I have written. And, no doubt, he has the payments in the payment system, even if this influence same difficulty with my remarks (see also Tobin is very regular and foreseeable. 1970, Friedman 1970c)." The theory building to-day is characterized Even among the economists there are these by its dualism, the division in money theory and insights of having failed. Daniel Bell and Irving common price theory. This may have a pedagogical Kristol wrote already in 1981 in ´The Crisis in value, as have different methods and explanation Economic Theory´, 228: "Today, the failure of systems on macro- and micro levels. But it is wrong to economics to provide either reliable guides to policy presume that different forces influence different levels or a credible picture of reality is painfully clear. The in the society. Of course the same forces work in all result has been an unprecedented - and exciting - crisis economics, they are of monistic character. Compare in economic theory as economists have been forced to with Keynes´ critics in ´The General Theory´, p.292. reexamine their basic assumptions in an attempt to (1). I am of course aware of possible lacks and account for the apparent failure of their discipline." gaps in my propositions, but this is valid for all Peter E Drecker writes on p. 5: "- - -What systems in the economics published up to now. As I makes the present ´crisis of economics´ a genuine now approaches the end of my life, I have not been ´scientific revolution´ is our inability to go back to the able to do the work as cast in one piece and as free economic world view which Keynes overtuned from detail faults, as I would have wished. I would have preferred to be able to work on it for another 1 - Notes: See after chapter 1. 2 years before publication. But I am quite convinced Mark H. Willes,93: "- - - The conventional My new work comprises in principle two method in 40 years has not produced one model that different parts. Part II contains an examination of the captures what happens when policy changes - and it is foundations of economics and in what relation present absolutely incapable of doing so - - -." See also 81,85, theory buildings stand to these.