Re government bond as a claim on future output, you might have a look at the long form version of The Money Enigma. (You can download it at http://www.themoneyenigma.com/money/).

Society has three choices when it wants to finance public expenditures:
1). raise taxes
2). issue bonds
3). issue money

Taxes are a claim on current output.
Bonds are, at least in one sense, a fixed claim on the future output of society.
Money is a proportional (variable) claim on the future output of society.

The reason US government debt is AAA rated is because it represents a fixed claim on the future output of the world’s largest and most diversified economy.

Clearly, it is a little more complicated than that because government bondholders can’t demand future output as payment per se. But I think the general principle is valid.

Money, on the other hand, is the equity of society – it represents a variable claim to the future output of society.

Your second point raises a host of issues that are discussed in The Inflation Enigma and The Velocity Enigma. There is no doubt that private debt matters. The framework that I use to think about it is called Ratio Theory. In simple terms, the price level is a function of two market values: (1) the market value of goods (the numerator) and (2) the market value of money (the denominator). As credit expands, this should generally increase the market value of goods which places upward pressure on the price level.

Where is gets complicated is the impact of private credit on the denominator (the market value of money). The market value of money is primarily determined by long-term expectations of the path of the “real output/base money” ratio. A large expansion of private credit can boost confidence, raising the value of money and suppressing the price level. (I think this is what has happened over the last 20 years). Alternatively, such a large credit expansion may, at some point, erode confidence in the future path of the economy at which point the value of the proportional claim (the value of money) begins to fall (the price level rises).

I think the risk today is that we are living on a bit of a confidence high, driven in part by massive credit expansion over the past 20 years. If this confidence falters, the value of money could collapse quickly, leading to a sudden surge in inflation.

That is a good point. In the first paper in The Enigma Series, The Money Enigma, I explain that I believe that money is the monetary base, while everything else is merely a claim to money (a claim to a claim on the output of society).

But I agree that it is not clear in this post and I will be more explicit in the future. From my perspective, money = monetary base.

I think though that government bonds are also a claim on the future output of society. Have you addressed this anywhere?

Also I’m not convinced that only claims on the future output of society, as opposed to other claims, affect the value of the referenced denominator.

I think that private claims also affect the value of the denominator.

For example, imagine a small society which has banned private credit, and has 1000 dollars worth of bank notes in circulation. The market price of bananas is $1. The restriction on private credit is lifted and the banana supplier can now sell bananas on credit. It seems clear that the price of bananas would rise, all else being equal. Would you agree?

This really means that when you say money you mean the monetary base.

It doesn’t follow that people will receive that meaning.

Readers would understand you better if you used a different term. Then your work stands more chance of achieving what you want it to achieve.

Thanks for your very constructive comments.

I agree that economics must distinguish between “money” (a liability on the output of society) and “credit instruments” that are often misclassified as money (for example, liability of banks, including, but not limited to, bank deposits).

The view of The Money Enigma is that the monetary base is money. Society authorises the government, on its behalf, to issue proportional claims on the future output of society.

Conversely, society does not authorise banks to issue claims on the future output of society. Rather, banks can only create credit instruments such as banking deposits. These are merely future claims against the bank.

Money (base money) is a special form equity instrument (it is a proportional claim on the future output of society, just as a share of common stock is a proportional claim on the future cash flows of a company).

In contrast, most of the things economists classify as “money” are really just credit instruments.

Supply and demand for money (the monetary base) determines the market value of money, the denominator of every money price in the economy.

Supply and demand for a credit instrument determines the interest rate on that credit instrument (eg. bank loans).

As you note, the importance of distinguishing between the two is paramount.

I feel we will never get anywhere unless we stop lumping these things together.

Yes, bank notes are a liability of society. However bank deposits are a liability of a bank and credit card spending involves a new liability of a consumer.

Any chance of reframing your work to properly separate these very different forms of “money”?

I really feel you are on the right track.

I think the key point is: USD (for example) is a unit of measure held (reasonably) constant relative to goods and services by the inertia of massive amounts of credit contracts that reference it. These contracts include bank notes, hpm deposits, government bonds, interbank loans, bank deposits, private loans, etc. The quantity of these contracts, and their distribution across consumers is what influences their “price” expressed as a quantity of a particular good… and indirectly therefore the ratio of the USD unit of measure to units of that good.