Commodity money

A commodity is any good or service that is useful as an input in production or con- sumption and can be exchanged with other goods or services. The exchangeability of commodities presupposes the existence of a common element that makes them commen- surable to each other. Classical economists argued that the common element contained in commodities is that they are products of labour. Hence, the quantity of labour time spent to produce any commodity becomes the measurement stick of its worthiness. Of course, there are differences and qualifications within this broad classical approach. For example, Marx's concept of abstract socially necessary labour time - that is, the labour time without its specific characteristics - is what gives worthiness to commodities.

Historically certain commodities, owing to certain useful attributes they possessed, became money commodities; that is, the means through which the other commodities can express their worthiness and in doing so become the medium for quoting prices. If gold, for example, is the money commodity, the other commodities express their worthiness in terms of a certain quantity of gold (for example, 1 US dollar 5 1/4 ounce of gold). The value - to wit, the abstract socially necessary labour time - contained in a commodity, relative to the value of gold, gives the direct price or a first approximation of the monetary expression of value and a centre of gravity for observed (market) prices (Shaikh, 1980).

Financial innovation

Financial innovation is defined as "the act of creating and then popularizing new financial instruments, technologies, institutions, markets, processes and business models - including the new application of existing ideas in a different market context" (World Economic Forum, 2012, p. 16).

Merton and Bodie (1995) and Tufano (2003) provide categorizations of financial innovations according to the functions they have been serving, throughout history, in terms of reducing financial markets imperfections such as transaction costs (including asymmetric information), missing markets, and the existence of taxes and regulation. As a result, financial innovations have facilitated trade and provided ways of managing risk. By contrast, the conceptualization of financial innovation presented by heterodox eco- nomics is grounded in the separation between financial and industrial capital (see Niggle, 1986). This separation can be traced back at least to Karl Marx and is germane to the duality of the role of finance, which may be "extraordinarily powerful in mobilising and allocating finance for the purpose of real investment. But, by the same token, it can both trigger and amplify monumental crises" (Fine, 2007, p. 4).

Credit guidance

Pioneered by the Reichsbank in 1912, credit guidance is a technique used at one stage by most central banks to manipulate bank credit creation in order to achieve monetary policy and sometimes industrial policy outcomes. This technique was transferred from Europe to Asia by Hisato Ichimada, who trained with Reichsbank president Hjalmar Schacht in the 1920s in Berlin, before later becoming the governor of the Bank of Japan, which used that instrument continuously from 1942 until at least 1991 (Werner, 2002, 2003a).

The common name for “credit guidance” in East Asia is “window guidance”. In this procedure, the central bank determines quarterly loan growth quotas for all banks in a top-down process starting with the desired nominal GDP growth, followed by the cor- responding growth in bank credit for GDP transactions (in accordance with the quantity theory of credit), which is then awarded pro rata to individual banks according to their assets size. Progress with the implementation of the loan quota is reported by the banks to the central bank on a monthly basis. During the monthly hearings, all information on bank balance re-allocate existing purchasing power. That, however, is a private sector activity whose regulation is difficult to justify. Not so for bank credit creation, which exploits the public privilege of issuing money for new transactions. As a result, a conflict of interest exists in the case of for-profit banks maximizing their shareholders’ value: their activities may be harmful for society or at least not “socially useful”. In this case, regulation, such as in the form of credit guidance, is justified.

Bernanke, Ben Shalom

According to Harris (2008, p. 203), Ben Shalom Bernanke (1953-) "seems to have system- atically trained himself to become a top central banker". That training and experience has been quite different than his predecessor as Chairman of the Board of Governors of the US Federal Reserve and of the Federal Open Market Committee (FOMC), Alan Greenspan. The majority of Bernanke's career has been as an academic within prestig- ious US institutions. Following a degree in economics at Harvard (1975) and a PhD at the Massachusetts Institute of Technology (1979), Bernanke initially worked as an Associate Professor at Stanford (1979-83), before holding a variety of Assistant and then Full pro- fessorial positions at Princeton (1983-2002), where he remained a member of the faculty until 2005. He served as editor of the American Economic Review between 2001 and 2004. Bernanke's principal academic work has focused on the role of monetary policy. He has published widely on the causes and consequences of the Great Depression (see Bernanke, 2000). Whilst not unequivocally supportive of all aspects of Friedman and Schwartz's (1963) work, he conforms to the position that the Fed adhered to the gold standard in a way that reduced liquidity and that it allowed an escalating set of bank failures (was "liq- uidationist"). Following Friedman and Schwartz (1963), Bernanke argues that a central bank can cause and accentuate aspects of the business cycle and that it has a key role in shaping that cycle. Concomitantly, Bernanke's interests extend to the Japanese response to deflationary pressures in the 1990s, and more generally the role and scope of central banks, particularly inflation targeting (see Bernanke et al., 1999).

Deutsche Bundesbank

The international fame of Germany's central bank, the Deutsche Bundesbank, rests on West Germany's low inflation record in the post-Second-World-War era, which, including the high-inflation 1970s, averaged 3 per cent over the 50-year history of the deutschmark from 1948 to 1998. "Buba", as the bank is called in the markets, has a reputation as an inflation hawk. Held in awe in some international political and financial circles, but scorned in others, the Bundesbank has established a firm backing in German public opinion and has generally enjoyed respect and support from across the political spectrum, too. Despite becoming part of the Eurosystem and surrendering its de facto monetary reign over Europe to the European Central Bank (ECB) with the euro change- over in 1999, the Bundesbank continues to wield disproportionate political power in policy debates both in Germany and at the European level today.

Biddle, Nicholas

Nicholas Biddle (1786-1844) was the third and most famous president of the Second Bank of the United States (SBUS). He was an active president of the Bank, perhaps anticipating certain central-banking functions (Hammond, 1991). Biddle famously opposed the US President Andrew Jackson during his "war" against the SBUS.

The SBUS was created in 1816, the First Bank of the United States having lost its charter in 1811. The fiscal requirements of the US federal government during the War of 1812, the bank runs of 1814, and wartime inflation conspired to change the mind of US Congress (Walters, 1945). The SBUS was to be private, though 20 per cent of its capital was supplied by the US federal government in the form of bonds. In addition, the SBUS would maintain a special relationship with the US federal government, as the US President would appoint five members of its 25-person board, while the bank would act as the government's fiscal agent. The SBUS was subscribed with roughly 35 million US dollars, and was, by Biddle's tenure, the largest corporation in the nation (Hammond, 1991).

Burns, Arthur Frank

Born in 1904 in what is now Ukraine, the son of poor immigrants, speaking no English as a child, Arthur Frank Burns graduated from Columbia University with both Bachelor and Master degrees in 1925. He taught at Rutgers University from 1927 to 1944, earned his PhD (Columbia University) in 1933, and became an internationally respected scholar, a director of the US National Bureau of Economic Research (NBER), Chairman of the Council of Economic Advisers (CEA) of the US President, Chairman of the Board of Governors of the US Federal Reserve (Fed), and US Ambassador to West Germany. He died in 1987 from complications following heart surgery.