And The Power of Gold: The History of an Obsession by Bernstein:
> In this exciting book, the late Peter L. Bernstein tells the story of history's most coveted, celebrated, and inglorious asset: gold. From the ancient fascinations of Moses and Midas through the modern convulsions caused by the gold standard and its aftermath, gold has led many of its most eager and proud possessors to a bad end. And while the same cycle of obsession and desperation may reverberate in today's fast-moving, electronically-driven markets, the role of gold in shaping human history is the striking feature of this tumultuous tale. Such is the power of gold.
The Nature of Money, Geoffrey Ingham, predates Bitcoin and the financial crisis, but it is still the most incisive theoretical discussion of money I've read. If Debt: The First 5000 Years is undergrad, The Nature of Money is grad.
+1. You beat me to posting it. As you rightly pointed out it’s not an easy read.
I also recommend “The Invention of Coinage and the Monetization of Ancient Greece”. It succinctly covers second order effects of money. I got a good understanding of histories of phenomena that we take for granted such as salary. It’s fascinating to read about the transition.
As a meta, I’ve been fortunate to witness a similar momentous transition computers and internet/communication. I wonder what other transition we are going through right now.
Nice recommendation, I've added to my reading list.
I have read Graeber's Debt and it's a great book but always thought that it left out many so questions unanswered. His anthropological treatment of money is quite nice until feudalism, but when he starts explaining the start of the Enlightenment and the gold standard in Europe things seemed very rushed and inadequately explained. Also it only touches upon our current system (post-Bretton Woods neoliberalism) briefly in the last chapter, which was a letdown since I though Graeber would have many comments about our current configuration of society.
Big ups for Bernstein, Against The Gods was a fantastic read and I can’t wait to read Power of Gold.
Another book I’d like to throw into the mix here: Central Banking 101 [0]
Fantastic overview of how the current central banking system works, written post-Covid so it has some context for the extensive QE that’s been happening over the last 2 years. Author worked on the Fed’s trading desk for over a decade in various capacities so he has a deep experiential knowledge of the plumbing in action.
Graber misinterprets the history and ideas of mainstream economics, calls the safest securities on the planet a debt that will never be paid and spins bizarre conspiracy theories about the Iraq invasion. You might learn about the quaint cultural practices of remote tribes but I strongly disagree that it is a good book to understand money in the real world.
I can totally get down for this interpretation. When you think of Humanity (collectively-singular) as an entity destined to invent everything, we will obviously eventually invent the concepts of money, interest, debt, etc. The money can reproduce faster than Humanity can, so we're effectively in debt to ourself and have spent so many years trying to pay it off that we've forgotten we're truly One.
Debt only makes sense if there are at least two entities involved. If you think of humanity as a single entity, there can't be any debt: You can't be in debt to yourself!
And that is not what Graber is talking about. The point was about US Treasuries. Everyone treats them as cash equivalents because nobody believes that the US Government will default. But Graber says and I quote:
> American imperial power is based on a debt that will never-can never-be repaid. Its national debt has become a promise, not just to its own people, but to the nations of the entire world, that everyone knows will not be kept.
And this is the kind of nonsense that is sprinkled all over the book.
The last time the federal government had a surplus was 2001. So it is historically not the plan to pay off debt with taxes: The debt is increasing, not decreasing.
And if I Google "united states per capita debt", I see a box:
According to the last data point published, United States per capita debt in 2020 was 84,850 dollars per inhabitant. In 2019 it was 70,557 dollars, afterwards rising by 14,293 dollars, and if we again check 2010 we can see that then the debt per person was 46,284 dollars.
So, one theoretically could reduce debt with tax payments. But it doesn't appear to be the current or historical plan.
I guess this comes down to semantics. Paying off an old loan with a new one isn‘t ”paying off your debt“ in my eyes. You are still in debt afterwards.
The total amount of debt will never come down again without hyperinflation. Whether that is good, bad, or doesn‘t matter is up to economists. But that‘s how it is.
Musk, Bezos, and other billionaires have most of their cash in the form of loans taken out against their paper assets. This means they are actually producing more than enough new value to cover the interest on those loans, so essentially the loans they get are free money handed to them by someone who believes they'll pay it back, which those billionaires can then put into more productive or higher-yield enterprises and make even more money with it. When borrowing or refinancing is a good idea, you do it, because you'd be losing potential gains if you didn't. That's essentially the situation with America.
Again, this comes down to how you define ”pay the debt“. To me, if you pay back your debt, you are dept-free. Re-financing (at the same interest rate) is debt-neutral, if you follow this logic.
> To me, if you pay back your debt, you are dept-free.
Graber's point is primarily about foreign holders of US debt and how this is the American empire extracting tribute from its vassals. Whether America is debt-free or not really relevant.
You mean the real value of debt. By the way, it can't be paid off because negative interest rates, which represent the power of the debtor to refuse additional debt, are either ignored or people are trying to make them illegal. Germany has negative interest rates on its public debt and debt is going down.
> I guess this comes down to semantics. Paying off an old loan with a new one isn‘t ”paying off your debt“ in my eyes. You are still in debt afterwards.
In the context of meeting obligations to creditors, which is what is being discussed, it absolutely is.
> The total amount of debt will never come down again without hyperinflation.
What has fundamentally changed since the last time it did which was (checks) Q2 2019?
> Whether that is good, bad, or doesn‘t matter is up to economists. But that‘s how it is.
There is very little reason to believe that. In fact, to the extent that the debt and inflation are related, the same acts which drive the debt up drive inflation, not the other way around.
so what? Have they missed an interest payment? Is their economy unproductive and cannot pay the interest?
Having the debt means you are entitled to a portion of the economic output of the machine behind that debt. Why is it a must for the debt to be repayable in one go? Esp. if the debt was not all issued in one go?
each time a particular treasury bond is due in full, the US treasury has been able to repay it. Whether they repay it by issuing new bonds, or increase their taxes and pay it off, makes no difference to the holder of that bond.
In absolute terms, the US is probably competitive as the most indebted entity in history. In relative terms, they are well past the threshold where countries pay back their debts in full. Their past performance isn't really a guide to what happens next, unless they've changed what is being measured the US is a financial basket case [0]. They aren't going to pay back what was lent to them in real terms, the idea is preposterous.
https://carnegieendowment.org/chinafinancialmarkets/86397 presents a reasonable argument for why you can't just compare debt-to-GDP between very different systems and expect it to make sense. (The US in particular is, of course, in many ways an outlier.)
I don't get it. What you are describing isn't even close to MMT because MMT is not a policy. Secondly, MMT predicts that inflation happens the moment your economy is running at full capacity and that deflation happens when you pay off debt to make the economy run below capacity. Those two things aren't disputed at all and no government has adopted policies based on MMT.
MMT is the idea that the constraint on tax/spending in a fiat money system is monetary effects (inflation/deflation), not the need to tax or borrow money that you could just print to fuel spending.
Ironically, the people that are most opposed to MMT on the basis of outright lies about its content are the people that are most likely to argue against large deficits on inflation grounds even when there is no problem borrowing enough money to fuel it.
By the same token, in a fiat money system, there's no reason for debt in the first place. Government debt denominated in its own fiat is a side effect of cosplaying a commodity money system.
Everyone knows the debt will never be fully repaid. Just the interests and that has to do with how there is a little parasite between the country and the money.
Right. So this supposed "revelation" that fiat money is debt created by elites out of thin air, has been the hocus-pocus story that every goldbug, sovereign citizen's movement and crypto-coin huckster has memorized to absolutely wow the gullible with conspiracy theories for the last 100 years. It's a guaranteed way to make a (fiat) buck if you sell a book along these lines.
But the ridiculous thing is, in every situation other than US dollars, all people understand that buying debt is gambling on the risk of not being paid back. Whether you're buying some Argentine note that pays 30% or a municipal bond (or a war bond) or a ticket to see a movie in a theater that might close next week, you understand that the paper is worth more at maturity but it comes with risk. Everyone outside America who actually buys US debt fully understands this and makes the risk calculation, so how is it that average slackjawed Americans are just dumbstruck, generation after generation, year after year, by the notion that their evil government or central banks together are pulling off some sort of fast one on the rest of the world? No one buys this shit who doesn't weigh the risk. To whatever extent it's a house of cards, that's on the investors anyway, so there's no reason the average American should trouble themselves about it until/unless they need to learn what a national default looks like.
It's true by definition. The savers will never give up their savings, the savings which are necessary to pay off the debt as public sector debt is private sector savings. It is quite simple.
The US government can issue more fiat to repay bonds if necessary. It can literally print itself out of debt. Yes, this could potentially cause some devaluation, but it's still a powerful backstop. The US would only default by choice, rather than being forced to. This is the privilege of having the USD be the world's reserve currency.
At the level of the world's biggest economies, the concepts of debt (bonds), money, and interest rates are more abstract economic levers that central banks pull in order to keep economies chugging. They're not really the same things they are to individual people and corporations, e.g. in the way debt can cripple someone's finances.
The central banks and governments are the game masters who set the rules and issue tokens, and we're the players interacting within the game and responding to the environments that they create.
No, the US can simply create more USD and use it to pay off bond debt. Creation of USD doesn't incur more debt, but does expand the USD monetary base and inject more USD liquidity into global markets. The US doesn't actually need to borrow more to pay off old debt.
To restate: bonds and other loans are literally a policy tool to take in USD from or inject USD into circulation, in order to intentionally change the size of the money supply: "Open market operations (OMO) refers to a central bank buying or selling short-term Treasuries and other securities in the open market in order to influence the money supply." It's not like the central bank actually needs to borrow USD from the money supply; it's literally the issuer of USD and could create more at any time (or take it in and destroy it).
Why can the US do this? Because its bonds are denominated in its own currency, which world investors use. The demand for USD-denominated debt is a major benefit of the USD being the world's main reserve currency.
Graeber is a poor economist but a good anthropologist. Debt: The First 5000 years deserves props for debunking the myth of barter coming before credit and for its observations on how small economies of mutually known & trusting people operate. It doesn't make sense to scale these up to society-wide systems; indeed, the reason we can have societies on the scale of nation-states comes from financial innovations that replaced mutual trust & credit with ledgers and double-entry bookkeeping.
Interestingly, you can see the emergence of small-scale credit forming with things like how a group of mutual friends splits the tab when going out to meals. "I'll get mine, you get yours" doesn't usually survive as people get to know each other and start interacting more regularly, rather it's "I'll get this time, you get the next time", and it all works out as long as everything feels fair, because everybody has a pretty good memory for when they get shafted.
Is exactly my point which is why said that Debt is a terrible book to understand money in the real world.
> deserves props for debunking the myth of barter coming before credit
Do you think Graber came up with this? Or that this wasn't the mainstream view amongst economists? Allyn Young wrote matter-of-factly about it for a popular science book in 1924[0]. And I don't mean to say he was the first one to realise this, I'm saying this was a common view. And Young wasn't some avant-garde heterodox radical. He was the president of American Economic Association. It doesn't get more mainstream than that!
And this what I mean by misrepresentation of the history and ideas of mainstream economics. And Graber doesn't stop there. He pretends like somehow all of economics is hinged upon this Myth of Barter.
Adam Smith is not the supreme arbiter and law-giver of economics. FWIW, Graber's critism of Adam Smith in this instance is justified. But as is typical of Graber, he doesn't stop there. He goes on to say thet Adam Smith's famous "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest" thesis is wrong because shopkeepers of the time mostly sold goods on credit and thus the customers were in fact depending on their benevolence.
If credit was benevolence, that would make banks the most benevolent entities on the planet.
>Adam Smith's famous "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest" thesis is wrong because shopkeepers of the time mostly sold goods on credit and thus the customers were in fact depending on their benevolence.
It's not necessarily wrong though. Giving credit can still be a self-interest motivated action, in fact it would most often only be that - generating a higher reward to the risk taken by giving it - as banks try to manage. So yes, banks aren't run by benevolence, and they aren't the most benevolent entities on the planet (far from it) - they're just economically rational actors, that are benefited by offering credit.
I’m about halfway through Debt and enjoying it so far, but that Adam Smith line, The Wizard of Oz being weirdly recognized as a Sliver/Gold standard allegory and the history of the creation of IBM were all odd enough to make wonder about the rest of the book.
Which editon are you reading? I thought the garbled IBM/Apple story was removed from later editions. Anyways, it was just a failed attempt adding some colour. I wouldn't ascribe too much importance to it.
I had forgotten about the Wizard of Oz bit! I don't recall if it was meant as an aside or it was meant to support a larger point about public opinion of bimetallism.
The bulk of the middle section of the book is mostly just meh. The final chapter though is something to behold! It's comically bad.
The book remains fairly popular in certain circles. If not for anything else, read it so you can politely refute the person who brings it up at a party.
I think I have the 2014 version. I don't think the IBM story itself is too important, but it does make me a bit more skeptical about other things that I have little firsthand knowledge of. As a comparison I remember reading a local newspaper article about something I happened to be involved in and the details were a bit off, making me wonder about the other articles I had no prior knowledge of.
The Wizard of Oz bit is mostly color, but he relates it to the difficulty state-money theorists have had in coming up with similar narratives, and also that the myth of barter has persisted for lack of a similar anthropological myth for money.
L. Frank Baum's The Wonderful Wizard of Oz, however, is not only a child's tale but also a
sophisticated commentary on the political and economic debates of the Populist Era.1 Previous
interpretations have focused on the political and social aspects of the allegory. The most important of
these is Littlefield ([1966] 1968), although his interpretation was adumbrated by Nye (1951), Gardner and
Nye (1957), Sackett (I960), and Bewley ([1964] 1970). My purpose is to unlock the references in the
Wizard of Oz to the monetary debates of the 1890s. When the story is viewed in this light, the real reason
the Cowardly Lion fell asleep in the field of poppies, the identity of the Wizard of Oz, the significance of
the strange number of hallways and rooms in the Emerald Palace, and the reason the Wicked Witch of
the West was so happy to get one of Dorothy's shoes become clear. Thus interpreted, the Wizard of Oz
becomes a powerful pedagogic device. Few students of money and banking or economic history will
forget the battle between the advocates of free silver and the defenders of the gold standard when it is
explained through the Wizard of Oz.
Graeber did not claim to be the first debunking the myth of barter.
However, what does it even matter, when the zombie keeps walking to this day? The linked article repeats the myth of barter.
And lest people think it's only right-ish economists that keep repeating it, Yanis Varoufakis did so too (in his book "Talking to my daughter about the economy").
And yeah sure, nothing "hinges" on the myth of barter. But it is a symptom, a glaring illustration that economists are really bad at arguing from how real people actually act, and cheerfully embrace just-so stories that support their preferred ideas - which is the linked article's whole game, too.
> Graeber did not claim to be the first debunking the myth of barter.
I didn't say Graber claimed that. I was refuting the common defence of the book and emphasising that it was already a mainstream view.
> However, what does it even matter, when the zombie keeps walking to this day?
> But it is a symptom, a glaring illustration that economists are really bad at arguing from how real people actually act
How much does the historical origin of money matter to the understanding economics of today?
Economists aren't particularly interested in the origin of money. Any references to barter are usually in fluffy lines like this article or as dumb thought experimens. The fact that some of them get it wrong is not indicative of anything.
> cheerfully embrace just-so stories that support their preferred ideas
Which is rife across the humanities and not exclusive to economics. Hell, Graber's entire book is full of just that.
If you look at popular books or even school text books, they will cheerfully claim that seasons are caused by the change in distance between the earth and the sun. That doesn't mean people working on climate models don't know that's not the case.
And Varoufakis is <insert polite term for crackpot>, not exactly representative of mainstream economics.
I think your criticism of Graeber is somewhat fair. And it's a fair point that incorrect popular/lay theories don't mean experts don't know how things actually work.
That said, I do think Graeber is right to emphasize the role of culture and belief--anthropological ideas--as an antidote to overly quantitative/mechanistic models. I'm not an economist, but it does seem like behavioral economics was pretty revolutionary in advancing the idea that humans are not just rational utility maximizers, despite Keynes using the term "animal spirits" nearly 100 years ago.
Again, speaking as a layperson, it's frankly a bit weird to me how distant economics, anthropology, and psychology seem to be from each other.
> I do think Graeber is right to emphasize the role of culture and belief--anthropological ideas--as an antidote to overly quantitative/mechanistic models
This is a false and misguided dichotomy. Nothing prevents you from taking culture and beliefs into account when you create a model.
"Just-so stories that support their preferred ideas" + "so nothing prevents you from taking culture and beliefs into account when you create a model."
A litte OT but,... years ago i read a HN-Topic, about um 'What to change if we could'. I read some postings, where people seem realy angry with abuse, misuse and malpractice, done by people who may or even may not wanted to be remembered as: 'This is our work, we do this cos we are in empowered to do so' (won't explain it more, back to more context:)
My conclusion by that time was, questioning: 'Is privatizing favourable?' Cos there is confusing data, complex situations and a need for easy hypotheses...(and solutions maybe) The assumption that time was, that the gov spend a (huge) budged to pacify many more conflicting 'partys' than a private entity would like to do/or will, cos generating income through excessive spending (may 'only work when'/'need expotential growth') means nothing more than the need to reinvest profits to bigup the businesses.
(sry, non native english-speaker)
And now really OT, I remember some of the friends around Putin are building contractors, and the TV-shows about the war in Ukraine or Syria before um...
Behavioral economics, the bastard child of psychology, is built on an edifice of fashionable nonsense. The field is rife with grand generalizations based on dubious conclusions from small under-powered behavioral experiments. Just look at what a disaster the much hyped priming studies turned out to be. I would not count on behavioral economics to advance a more accurate understanding of the human condition.
I know very little about economics but I am compelled to point out the irony in your comment.
How I understood your comment:
"This whole field, consisting up of many people trying to do understand things, is just a bunch of nonsense generalizations."
Frictionless spheres are fine in Physics 101 and Homo economicus is fine in Economics 101. Like all models, economic models too are wrong but some of them are useful. The bulk of economics after 101 is about how the models break.
The idea that humans are not perfectly rational self-interested actors has been part of mainstream economics at least since Keynes.
Is it the whole story? Probably not. Like I said, I'm not an economist.
But given the extreme challenges in empirically testing macroeconomic models, it should be no surprise that economists might--as somewhat irrational humans--over-rely on theoretical models.
> How much does the historical origin of money matter to the understanding economics of today?
A lot? Money is a social construct, so the history of money is something like a record of empirical observations that must be accounted for by any proposed theory of money. The fact that most modern economists don't seem too concerned with this doesn't mean that it's not important.
If you're going to dismiss all economists & anthropologists that do not subscribe to your opinions, you're not going to advance your opinions very much
> If you're going to dismiss all economists & anthropologists that do not subscribe to your opinions, you're not going to advance your opinions very much
The idea that Varufakis is not mainstream is not even remotely controversial. I have issues with Graeber's misrepresentation of economics, not his anthropology.
I'm pretty sure the "myth" of barter is really just an educational/explanatory crutch that economists have used to introduce laypersons to the idea of money without overwhelming them with caveats and nuances. Kind of like how schoolchildren learn that the American Revolution was a revolt against unjust "taxation without representation".
You can tell that Graeber isn't an economist because he mistakes the oversimplified educational narrative for what monetary economists actually believe about the history of money and credit. But you have a fair point--even economists often fool themselves about this, possibly because the field has grown to the point where many aren't as familiar with this topic as they should be (I don't think that was the case 100 years ago).
This is taught in universities in Economics degrees (along with many other misconceptions, as a matter of fact). So it's not at all the case you're saying.
Even if it is an oversimplified story to explain a more difficult concept, it's often used as a moral justification. And really, I'd say Debt is more about the moral justifications of capitalism than it is an economic argument one way or the other.
I believe Graeber acknowledge that Marcel Mauss came up with https://en.wikipedia.org/wiki/The_Gift_(essay) long before him ("1925 essay by the French sociologist Marcel Mauss that is the foundation of social theories of reciprocity and gift exchange")
>And Graber doesn't stop there. He pretends like somehow all of economics is hinged upon this Myth of Barter.
I think he was specifically targeting neoclassical economists. The idea of Homo Economicus is essentially rooted in a number of myths that depict humans as spherical cows, Adam Smith's story of money emerging from barter being just one.
>Adam Smith is not the supreme arbiter and law-giver of economics.
Nope, he just has an unusual take because his analysis is more rooted in historical and anthropological study and, of course, he's kind of left wing. This angers people who try to gatekeep economic thought, limiting it to the likes of neoliberal (but still somehow mainstream) ideologues like Mankiw or Milton Friedman.
I guarantee that when David Koch made an large donation to Florida State U economics department he didn't do it with the idea that they would teach more Graeber.
> The myth is certainly taught by mainstream economists,
Can you please state what you think the supposed myth actually is? I'm asking because people seem to have very different ideas about what it actually is as seen in this very thread.
> I think he was specifically targeting neoclassical economists.
Quoting Graber:
> The answer seems to be that the Myth of Barter cannot go away, because it is central to the entire discourse of economics. Recall here what Smith was trying to do when he wrote The Wealth of Nations. Above all, the book was an attempt to establish the newfound discipline of economics as a science.
> Nope, he just has an unusual take because his analysis is more rooted in historical and anthropological study and, of course, he's kind of left wing.
He's talking about a specific example lifted from a particular textbook with that quote where they used insinuation to push the myth. He cites another example by Stiglitz just beneath it.
I lifted a different example from some other lecture notes in my link above where they just flat out said "this is what used to happen".
Really, there is no shortage of examples. It's the same myth in all cases, (although I wouldnt be surprised if some econ textbooks got patched since the book came out).
Im not sure exactly what youre trying to prove here. The distinction you're trying to highlight is hardly material.
Yes, I obviously did read the book. I also used to believe the myth because I first read it in an undergraduate econ textbook.
The distinction between what is presented as a thought experiment and what is supposedly claimed as historical fact is most definitely material. And Graeber makes it clear what he's talking about:
> It's important to emphasize that this is not presented as something that actually happened, but as a purely imaginary exercise. "To see that society benefits from a medium of exchange" write Begg, Fischer and Dornbuch (Economics, 2oos), "imagine a barter economy. " "Imagine the difficulty you would have today," write Maunder, Myers, Wall, and Miller (Economics Explairzed, 1991) , "if you had to exchange your labor directly for the fruits of someone else's labor." "Imagine," write
Parkin and King (Economics, 1995) , "you have roosters, but you want roses".
He quotes Stiglitz after this and remarks:
> Again this is just a make-believe land
Before claiming it's the same myth it's necessary to clarify what the myth actually is and why it supposedly is so important for capitalism.
> Yes, I obviously did read the book. I also used to believe the myth because I first read it in an undergraduate econ textbook.
In a deleted comment you claimed you read it in Mankiw. There it is most definitely presented as a thought experiment asking the reader to imagine the inconvenience of barter.
>The distinction between what is presented as a thought experiment and what is supposedly claimed as historical fact is most definitely material.
A) it's been presented as both. The example you pointedly ignored that I posted above is one such example.
B) It's not really that material. The story serves the same purpose either way - both in the above example and in, say, Stiglitz.
>it's necessary to clarify what the myth actually is and why it supposedly is so important for capitalism.
It is which is why Graeber did explain why it's important.
I thought you read the book?
>In a deleted comment you claimed you read it in Mankiw.
After writing that comment I double checked the 8th edition of the text to see if i remembered correctly and ctrl-f and found zero about barter in the whole book so I guess we both misremembered.
I cant honestly remember which econ textbook I read it in since it was 16 years ago, but I do know that I read it and believed it and there are plenty of other examples that can be found via google, so whatever.
> The example you pointedly ignored that I posted above is one such example.
Nobody thinks this is the mainstream consensus view, not even Graeber.
> The story serves the same purpose either way
> It is which is why Graeber did explain why it's important.
The whole thread is about why Graber's just-so explanations are wrong. And your arguments are materially different from what is actually in the text.
> I guess we both misremembered.
From The Principles of Macroeconomics, 3rd Edition. Chapter 15 - The Monetary System
> The social custom of using money for transactions is extraordinarily useful in a large, complex society. Imagine, for a moment, that there was no item in the economy widely accepted in exchange for goods and services.
> Orthodox (neoclassical) economists like Mankiw tend to be very strongly pro-corporate due to way funding flows in the profession.
This borders on conspiracy theory. I was in an econ PhD program for years (though I never quite finished the dissertation), and trust me, economists working in the neoclassical tradition do not need corporate funding to be right of center. Most academic economists aren't getting corporate funding.
And there are plenty of left-wing economists whose work is nevertheless mainstream in the sense of living within the neoclassical paradigm.
> The myth is that barter arose spontaneously throughout history and that currency arose as a more efficient means of mediating barter.
Economists mostly don't care how money arose, and 99.999% of theories in economics would be unchanged if money arose after barter, after credit and debt, or as a result of aliens implanting the idea in ancient peoples' brains.
I find it overwhelmingly ironic that economists consider "people respond to incentives" as a fundamental building block of economic theory but when the topic is "do economists respond to incentives?" the answer is no, they are only interested in truth.
Most programmers arent employed by FAANG but that doesnt stop armies of the ones that arent from idolizing the goog. Using money to build prestige that goes with money does a better job than straight up bribery.
Economists are the best paid social scientists by far thanks to the injection of money. Having a seat at the policy table has its advantages - advantages that anthropologists dont get.
>And there are plenty of left-wing economists whose work is nevertheless mainstream in the sense of living within the neoclassical paradigm.
I wonder if you are using, say, Paul "footsoldier of the DNC" Krugman as an example of "left wing" here because I cant think of any.
>Economists mostly don't care how money arose
The book addresses this point and explains why Adam Smith (and subsequent thinkers) did care. It's worth a read.
I'm a poor doctor, but my book about heart surgery deserves props for debunking the myth... You do see the problem here, don't you?
If people aren't qualified, as opposed to having credentials, to understand and comment on a subject, they should get a good co-author. Because the look at monetary policy through the ages is a very interesting one. If the authors do have an actual grip, and the ability to explain things to the layman unless we talk about dry scientific books, of the subject. If they don't it's just pseudo-science sold with confidence.
"Debt" isn't about monetary policy, though. It's about the anthropology of money, trade, and debt. It seems to me that those aren't subjects exclusively, or even necessarily optimally, addressed by economists, who, as a different commenter (correctly) wrote* above, aren't actually interested in the history of those ideas.
* Interestingly, I think that was meant as exculpatory for economists, which is itself a bit revealing.
> Debt" isn't about monetary policy, though. It's about the anthropology of money, trade, and debt.
And it would have been fine if Debt stuck to the anthropology. But perpetuating inaccuracies about money can be actively harmful.
For example, I-series bonds are the safest instruments available to US residents to hedge against inflation. Now, in popular conception, if US treasury bonds are seen as a debt that will never be paid, people might instead put their savings into assets that are suboptimal. You already see gold shilling targeted at senior citizens which makes for a terrible investment.
Fair enough, but I don't think seniors who buy American Liberty Coins after watching Tucker Carlson were informed by Graeber's economic sins--whatever they may be--in "Debt". ;)
That the national debt will never be "paid off" is hardly inaccurate. It's barely even controversial. It wouldn't be a good idea either.
Hell, I remember the news articles from the 90s during a brief period of budget surplus that fretted about what pension funds and insurers would do if they couldnt buy t bills any more. The mask briefly slipped as the reality of the national-debt-is-basically-just-a-savings-account before we returned to our regularly scheduled implied bankruptcy doom-mongering and budget ceiling theatrics.
Overall it's not bad that national debt is there. Because usually a nation gets something for it. And national debt is paid back, all the time. Nations don't default on their debt that often, if they do it's really, really bad.
So overall, debt isn't paid back. The particular debt is paid back very much indeed. And whatever was paid for with that debt is ideally here to stay. National debt isn't anywhere close to private debt or a mortgage. Looking at it that way is just wrong.
By no account do I understand monetary theory or how national debt works in detail. I know enough to understand that it is a very complex topic, one that isn't easily understood. So I am cautious when it comes to easy explanations.
The fact that public debt in its totality will never will be zero, doesn't mean that the tenants of that debt will not receive what they were promised.
In fact, you probably don't want the public debt to be payed.
If debt is a liability, that means that is also an asset of somebody. In the case of public debt is an asset of the private sector. A country without public debt would mean those senior citizens wouldn't have safe assets.
Also, a reduction of public debt means a lower deficit, that means less public expenses, that means, or a GDP fall or a higher private debt. Everything has to balance.
> debunking the myth of barter coming before credit
Not debunked at all. How do people even agree what things are worth in order to offer credit before there exists any prices?
The issue with Graeber and others is they are looking for a historical account of barter pre-dating a historical record of debt, but they will never find it, because the record-keeping begin for the purpose of recording debt. Any barter would pre-date any record keeping, and would likely be very shortly-lived before people converge onto a common money. They have completely misinterpreted Menger's 'On the Origins of Money' to begin with, and are debunking a straw-man.
> "We have actual case studies of communities developing money prices from scratch: namely, prisoners who end up using cigarettes as the common medium of exchange. [...] The prisoners certainly weren't giving each other things from their Red Cross kits as gifts or as loans. No, they first were trading (in a state of direct exchange) and cigarettes quickly became the money in their community [...] The prices (quoted in cigarettes) of various items were posted on a board. If Graeber and his colleagues stumbled upon the ruins of this P.O.W. camp, they would presumably conclude that there was never a preexisting state of barter, because they only found boards listing prices quoted in terms of cigarettes." - https://mises.org/library/have-anthropologists-overturned-me...
>>"The issue with Graeber and others is they are looking for a historical account of barter pre-dating a historical record of debt, but they will never find it, because the record-keeping begin for the purpose of recording debt."
Is this is the case, it seems to me that the issue is not with Graeber and others but, with the guys that claim something about which there is not historical account.
>>"We have actual case studies of communities developing money prices from scratch: "
The point is not if barter is used sometimes or if some people, in some circumstances, would start using cigarettes as money, but if that's the main history of money, specifically in the context of early states, as has been claimed for many years without any kind of evidence.
The burden of proof is not in the guys that examine the historic and archeology evidence, but in the ones that want to sell a narrative without evidence.
> The point is not if barter is used sometimes or if some people, in some circumstances, would start using cigarettes as money, but if that's the main history of money, specifically in the context of early states, as has been claimed for many years without any kind of evidence.
Both sides of the argument are making claims without evidence, because evidence prior to record-keeping of debt doesn't exist, and never will. There are only theories about how money came into being, and some are more plausible than others.
Graeber himself contradicts his own "debunking" of Menger's theory:
> "All evidence that exists points to money emerging as a series of fixed equivalents between silver – the stuff used to measure fixed equivalents in long distance trade, and conveniently stockpiled in the temples themselves where it was used to make images of gods, etc – and grain, the stuff used to pay the most important rations from temple stockpiles to its workers. Hence a silver shekel was fixed as the amount of silver equivalent to the numbers of bushels of barley that could provide 2 meals a day for a temple worker over the course of a month. It was the Temples that actually had a need to extend a silver system from a unit used to compare the value of a limited number of rare items traded long distance, used almost exclusively by members of the political or administrative elite of the societies in question – to something that could be used to compare the values of everyday items, like planks of wood, jugs of beer, and so forth."
Why silver?
Why were they already stockpiling silver?
How was it decided that silver would be used to measure fixed equivalents in long distance trade?
How was it decided the ratio of silver to bushels of barley?
What were these political and administrative elite doing when they proposed to offer a certain amount of silver for some long-distance traded rare items? (We have a word for this: 'barter')
Why would the foreigners they are trading with even want all this silver?
It takes some circular reasoning to get to where Graeber thinks he is, because he misinterpreted Menger to begin with. The above does not discredit Menger at all.
It seems to me, that nobody is denying the existence of barter. For instance, barter exist in our current modern societies. The question is if there are any evidence that the history of money is fundamentally the history of barter.
So, you have record-keeping that contradict the barter history and you have anthropology evidence that human semi-nomad tribes, even if they could barter sometimes, don't organize their society around barter, but, somehow, the more plausible evidence is barter. Don't know what to say to that.
This is still a misunderstanding of Menger. Menger's argument is not that societies were organized around barter at all.
He argues that where barter exists, people will quickly converge onto one or more forms of money for organizing trade. Even if it is not the intention of individual tradesmen, some astute traders will realize that they can profit by matchmaking (a necessity when there is a double-coincidence of wants). These astute traders will pick commodities which have the best saleability (those which are mostly likely to be accepted in exchange for other goods, and which retain value) as their means of measuring trade value. The successful traders will in turn, define which commodities emerges as the common monies in that economy, because traders who chose other (less saleable) commodities as their unit of measure will not be as successful.
It is not surprising that there are no historical documents outlining this, for it would likely pre-date even the written word by centuries or millennia. If it were the intention of a matchmaker to profit from establishing trades through use of goods with high saleability, they would also not likely advertise their tactics willingly, as they would be in competition with others attempting to make similar trades.
There are many historical accounts of monies being displaced when new, superior forms of money enter into economies, which is an extension of Menger's thesis (Also known as Thiers' Law). If a society is using a form of money which for whatever reason becomes much less saleable, and a new commodity enters the market which is more saleable, the more saleable commodity will eventually displace the old money.
So if it were the case that silver was selected (by who?) as the first money, 'for reasons', it seems like they hit jackpot on first try, for silver would remain the most saleable commodity for millennia until it would be later displaced by gold. Call me sceptic, but I don't buy such coincidences.
> It is not surprising that there are no historical documents outlining this, for it would likely pre-date even the written word by centuries or millennia.
Huh? During the 17th and 18th century European colonization of North America there was no existing standard of payment which all settlers had access to. Before the circulation of paper money by colonial assemblies, tax and wages for public servants shifted to tobacco due to the liquidity of the export market.
> There are many historical accounts of monies being displaced when new, superior forms of money enter into economies, which is an extension of Menger's thesis (Also known as Thiers' Law). If a society is using a form of money which for whatever reason becomes much less saleable, and a new commodity enters the market which is more saleable, the more saleable commodity will eventually displace the old money
In the American colonies, commodity money based on farm products was replaced by paper credit money loaned by governors on security of property. Gold and silver were skipped over as official forms of money because they were not in large supply, and because activists such as Benjamin Franklin argued that if people invested time in digging for Spanish gold and buried treasure they would be poorer than if they spent time plowing fields.
> for silver would remain the most saleable commodity for millennia until it would be later displaced by gold
What's important is not simply salability but liquidity. In industrial countries the value of credit money is secured by the value of the assets of borrowers, they have to collect money back in same unit of account after investing or spending it to avoid default and foreclosure. In America the colonies tobacco-money or farm-product money was displaced by paper money with no metallic backing. Metal-backed money was imposed by Great Britain.
Indeed. In fact, OP's quote is considered and dismissed by Graeber in Debt using precisely the same example:
"Occasionally, we can even find some kind of currency beginning to develop: for instance, in POW camps and many prisons, inmates have indeed been known to use cigarettes as a kind of currency, much to the delight and excitement of professional economists. But were too we are talking about people who grew up using money and now have to make do without it - exactly the situation "imagined" by the economics textbooks."
I read it some time ago (~2011) and don't remember the details. At the time, I knew nothing of money and took most of the book at face value.
However, when I later began studying Austrian economics, it became quite clear that Graeber's assumptions were based on circular reasoning, and that Graeber's writings on economics are through a left-leaning lens. That isn't to cast doubt on his work on Anthropology, which is fascinating to read, but I have doubts that he truly understood Menger's argument to begin with (or perhaps willingly chose to filter it to fit into his world-view.)
Being inside a deeply rooted paradigm, it is hard to imagine that the idea of "the worth" of a thing might not have been a paradigm that pre-historic people comprehended.
The thing that anthropologists like Graeber excel at is how they can take themselves out of their own conditioned thinking.
Think off this, when you see a n expensive car drive by you will most likely reflexively say "That car is probably worth $300,000". You assign an objective worth to the car, when classical economics will tell you that the actual worth of a car is subjective.
Personal ownership was not seen in the same way in the past as we see it today so objective worth might not have been in their mental framework.
> Debt: The First 5000 years deserves props for debunking the myth of barter coming before credit
Barter is just trading without the use of money. It isn't mutually exclusive with credit. What Graeber describes in his book is still barter. It's just a primitive credit system based promises of goods and services instead of promises of money.
Barter involves agreeing on a specific exchange rate. Graeber describes (among other things, of course) systems in which that doesn't happen; systems in which debt isn't quantified, but instead a general sense of who has been more generous to whom over their lifetimes.
>Barter involves agreeing on a specific exchange rate
This does not match with any definition that I've seen. Graeber debunks a parable used by Adam Smith and economists used to explain why money is more efficient than barter. The problem is that the central thesis of the parable still stands: trade is more efficient with through a medium of exchange.
Graeber's examples of early debt are reciprocal. Otherwise, there would be no need to record them. Sure, it's not as transactional as money is, but it's a transaction nonetheless. I'll admit it's not immediate, but I don't think that's a particularly meaningful distinction. It's not particularly difficult to trust a farmer within your community when they say they'll offer you grain in the future during harvest season. They'd risk ostracization if they break their promise, which is close to a death sentence in that era.
I remember several examples of qualitative generosity and not quantitative reciprocity, but it was a while since I read the book, so I accept that I might remember incorrectly.
2) Is it possible you think he is a poor economist because he deeply understood it from the outside and you are still too "in it" to see? That is not a criticism, it is a question.
I am deeply convinced economists fulfill the same function in our society that priests did in earlier ages - they flatter and influence the powerful, and avert people's attention from obvious injustices by packaging their hardship into some grander narrative.
can't thank you enough for calling Graeber and his psuedointellectual bullshit adherents out for what they are (you do it far better than I have the patience for)
>calls the safest securities on the planet a debt that will never be paid
This isn't the contradiction you think it is.
The US has been in debt permanently since the civil war. When exactly did you think it was going to be paid off in its entirety? Why would it even make sense to do so while there is a permanent demand for high quality securities?
Did you think Graeber was saying that treasuries weren't the safest security for you or me? He didn't. This is a gross misinterpretation of the book.
> American imperial power is based on a debt that will never-can never-be repaid. Its national debt has become a promise, not just to its own people, but to the nations of the entire world, that everyone knows will not be kept.
Graber then likens the large holdings of US treasuries by Western Europe, Japan and Korea to a tribute system which siphons wealth from these supposed client states to the American Empire. And then in the very same chapter he also says China accumulating US treasuries is the first stage of a very long process of reducing the United States to something like a traditional Chinese client state.
No mention of the actual conventionally understood reason of why US treasuries are favored as reserves i.e. safety and liquidity.
China isn't your neighbor topping up his pension or your local insurance company seeking a home for its premiums. Their risk profile and reasons for buying are utterly different. Even the liquidity of treasuries is, for them, different.
Why do you think Russia dumped its treasuries in 2018 if they're such a safe investment for military opponents of US hegemony? How liquid would they be right now if they'd kept them? Which buyer of treasuries do you really think China shares most in common with? Is it State Farm or Calpers? Or is it Russia?
What you're doing right now is the economic equivalent of trying to apply Newton's second law to relativistic speeds. Yes, that's absolutely misrepresenting the book.
OK, let's pretend that central banks around the world don't buy US treasuries because they are safe and liquid. Why do they buy them then? Is it because they are vassals of the American empire paying tribute? Or is it because they are trying to turn America into a client state? They both can't be simultaneously true. Yet these are the explanations proffered by Graber in addition to claiming:
> Its national debt has become a promise, not just to its own people, but to the nations of the entire world, that everyone knows will not be kept.
China's holdings are large enough that will they be able to trigger an enormous inflationary spike by unloading US treasuries unlike pretty much every other holder.
The larger their holdings and the more the US is reliant upon their industrial output the larger the inflationary spike they can trigger just by flipping a switch.
Whether that spike is large enough to break confidence in the US dollar entirely and break its hegemony is another matter.
The longer China manages to maintain a trade surplus with a US and siphon US industry away the better their odds are though and the scarier them unloading is.
It's kind of like adage about how you owing the bank $1000 is 100% your problem and you owing the bank $10 mil is now the banks problem.
So, the thesis is that China will be able to trigger a inflationary spike in the US by plunging their own economy into a recession? As a nuclear option, it could possibly work. But I will point out that China holds ~3% of US debt. And if China starts dumping US treasuries, they will be scooped up by other central banks.
As interesting as this thesis may be, this is not even remotely close to what Graeber was alluding to:
> From a longer-term perspective, China's behavior isn't puzzling at all. In fact it's quite true to form. The unique thing about the Chinese empire is that it has, since the Han dynasty at least, adopted a peculiar sort of tribute system whereby, in exchange for recognition of the Chinese emperor as world-sovereign, they have been willing to shower their client states with gifts far greater than they receive in return. The echnique seems to have been developed almost as a kind of trick when dealing with the "northern barbarians" of the steppes, who always threatened Chinese frontiers : a way to overwhelm them with such luxuries that they would become complacent, effeminate, and unwarlike. It was systematized in the " tribute trade" practiced with client states like Japan, Taiwan, Korea, and various states of Southeast Asia, and for a brief period from 1405 to 1433, it even extended to a world scale, under the famous eunuch admiral Zheng He. He led a series of seven expeditions across the Indian Ocean, his great " treasure fleet"-in dramatic contrast to the Spanish treasure fleets of a century later-carrying not only thousands of armed marines, but endless quantities of silks, porcelain, and other Chinese luxuries to present to those local rulers willing to recognize the authority of the emperor.
China has been engaged in a multi-decades long project of import substitution slowly moving up the value chain that is coming close to completion. There is almost nothing the US makes that China cant make too now.
At the same time they have been exporting cheap goods to the US which the US has become slowly accustomed to. Treasury purchase operations were an integral part of discounting these goods by artificially pushing down the value of the yuan. I suspect theyll try to keep this up more or less indefinitely until something snaps - they get slowly stronger and the US gets slowly weaker.
It has led to the US slowly deindustrializing and relying more and more upon artificially competitive Chinese imports.
The key feature of this strategy is the destruction of US industrial ecosystems through systematic, persistent undercutting. This is something the US tolerates because A) the frog is being boiled slowly B) US corporates have the same relationship with short term profits that an addict has with crack. In a way it's similar to the alliance the US made with the first batch of the post USSR oligarchs.
It takes 15-20 years give or take to build or destroy an industrial ecosystem while a currency can collapse in hours.
So yes, the strategy is very much like zheng he - service the US oligarchy's addiction to profit for a few decades before finally pulling out the rug and leaving the US to realize that it making an iPhone in the US will cost $3000 and you're actually all rather poor now.
That makes no sense. China holds only about $1.1 trillion in US debt. They've actually been reducing their holdings in recent years. Even if they dumped it all on the open market tomorrow that wouldn't be sufficient to trigger an inflationary spike. Do the math.
>Graber then likens the large holdings of US treasuries by Western Europe, Japan and Korea to a tribute system which siphons wealth from these supposed client states to the American Empire.
Doesn't it kind of keep interest rates low and create needed liquidity in the US markets?
I'm a layman but to me this reminds me of how i heard it explained that the status of the dollar as reserve currency and for oil transactions, etc subsidises subsidises the perpetual american trade deficit on the back of other nations. That person also referenced north african nations trying to protect their currency pegs even tho US fiscal policy was in part leading to issues for them leading up to the arab spring.
I wonder how much truth there is to that.
Graeber book was super annoying - it's fine to come up with a version of reality but to the degree your version is different from other people's you need to engage with them.
I know why you get downvoted. People tend to forget, so, that Marx actually was a pretty good, and respected, economist. And when he came up with "Das Kapital" it was one way of interpreting the nascent, unlimited capitalism of the industrial revolution. It's a pitty he was co-opted by people like Lenin or Trotzky. Less for what these two were or did, but more for the fact that they led to unlimited communism and Stalinism. Because of that, Western society tends to discard Marx. Looking around, seeing VC capital burning start-ups unhinging industries through capital alone, seeing a raising gig industry, I think Marx is as relevant as he ever was.
Not to mention, Marx was fascinated with capitalism and credits much to capitalism. He was a student of Ricardo and Smith. He respected both men deeply. In fact, a lot of Marx's work is an extension of Smith's own ideas and the use of Smith's own language and phrases. It is just, Marx comes to a conclusion that Capitalism has it's limits as a liberating force and thus develops his own ideas of socialism to take the reigns from Capitalism and continue the march of progress. In the critiques Marx has of Capitalism, they are even shared with Smith or deeply influenced by Smith's own struggles with issues that can become present in Capitalism.
We see a lot of Marx's basic ideals parroted by people without people realizing it. My favorite is Tucker Carlson listeners who spit on Marx. The idea of an elite with money/resource control controlling politics is literally straight out of Marx's writings and is a talking point Tucker Carlson likes to use.
> In fact, a lot of Marx's work is an extension of Smith's own ideas and the use of Smith's own language and phrases.
Yes, Marx took the bad parts out of Smith and Ricardo and made a weird theory based on his reification of labor and value.
> We see a lot of Marx's basic ideals parroted by people without people realizing it. My favorite is Tucker Carlson listeners who spit on Marx. The idea of an elite with money/resource control controlling politics is literally straight out of Marx's writings and is a talking point Tucker Carlson likes to use.
Does Marx have a monopoly on this idea? It is a very trivial thing to believe, you don’t need Marx for that.
> People tend to forget, so, that Marx actually was a pretty good, and respected, economist.
He was working with flawed economic concepts, like the labor theory of value. He tried and failed to relate "value" derived from labor to actual market prices. (We now know that the problem he set up was even logically not solvable.) The "economics" you find in Das Kapital is essentially a zeroth-order approximation to what would be considered economic reasoning today, a bit like Aristotle's physics compared to Einstein's GR. It is of some very niche interest for things like input/output analysis, which is important to computable simulations of the economy. But for anything else, it's just not useful.
We failed so far to accurately link work and market prices, capitalism is enabling that portion and is skewing things up. Marx did ask the question so, something most other economists never did. He also took a look at the social consequences for the working people, again something that is hardly done even today.
If you ignore the social aspects of capitalism and economics completely, sure, Marx doesn't look like an Einstein. If you include those, that changes, doesn't it?
EDIT (a long one): Recently I read "Faster, Cheaper, Better - A history of Manufacturing (pretty sure that's the right title, it's in a shelf at home right now) about the history of manufacturing from the stone age to LEAN and beyond, written by a former Toyota LEAN guy and current Professor at Karlsruhe University. Great book, can only recommend it. It is showing well researched examples for each period, including my personal favorite the Venetian Arsenal. And I totally agree with the author that we, as man kind, came out better every time we improved manufacturing. In the long run, in the short run we paid incredible high prices in health, lives and social issues. These short term consequences are just glanced over in this book, hand waved like "yadayadayada, child labor and harsh working conditions bad,... things improved, society better now".
Marx lived during the industrial revolution, he saw those problems first hand. He saw that people with capital got rich, exploiting poor people and driving whole societies and professions into the ground. The Luddites are sold as backwards thinking folks today. Back then, when you just lost your own, small workshop that provided food for your family too a manufacture, when your own, and your kids prospects, changed from stable income to ruined health, 12 hour work days and being treated as cattle, they seem to be quite reasonable so.
That Marx was the only prominent (there were certainly more, Marx being the most famous) economist looking at those issues says more about economists and politicians of the day than it says about Marx.
That those social aspects of our technological improvements are glanced over also tells a lot about us. We are in the middle of a second industrial revolution, one that is aggravated by climate change. We will have a ton of those social issues down the road. And we are not thinking about those enough. That we basically have to fall back to Marx to get some potential answers speaks volumes about modern economics, social sciences and engineering.
Marx also saw the potential of sustained economic growth way before anyone else did. He thought that socialism itself would only start making sense and become actionable after capitalism had exhausted its own growth potential; this is what would have made socialist revolution a foregone conclusion, a necessity of history - and an intermediate step towards full post-scarcity, which is what he meant by 'communism'. If he deserves to be called an economist (and I believe he does!) it's for these things. Not really for anything he wrote in Das Kapital.
I think most socialist that read theory know this, that is why they say socialism is more the road from capitalism to the never reachable utopia called communism.
At least that is how i have understand their explanation, das kapital is still on my reading list but it such a big book its kind of intimidating to start and given the limited amount of free time i have xD
> He tried and failed to relate "value" derived from labor to actual market prices. (We now know that the problem he set up was even logically not solvable.)
That may well be true. But I'm not convinced that modern economists are doing any better. For example, consider how much economic work is still based on the utterly flawed concept that humans are rational in a classical sense.
One thing about Marx is that he is as much history lesson as current economics lesson. Not that he, or other economists (the stuff from Mill I read is quite interesting, his "On Liberty" is great IMHO), are somehow fundamentally wrong today. They do have to be adapted for the last 100+ years so.
> consider how much economic work is still based on the utterly flawed concept that humans are rational in a classical sense
It is not. In its descriptive mode, economics captures animal spirits well. In its prescriptive mode, yes, this is assumed. But rationality is a simplifying assumption, with work then done to explain why the reality observed in the descriptive mode diverges from the predicted behaviour of rational actors. Put another way, the rationality assumption is part spherical cow, part “what would we do were we rational?”
Rejecting modern economics for the rationality assumption is rejecting modern physics for its use of frictionless environments.
Well, if you want to know opinion of his contemporaries you should read what they have written. Also, the third volume has a preface by Engels that tries to deflect criticism of contemporary economists.
> You should try reading Das Kapital.
Well, maybe you should try re-reading it, because as far as I understand it, it doesn’t say anything close to that; though I am sure there is an interpretation that claims so as there are dozens of various contradictory Marx’s interpretations.
You are better off with anything Proudhon or Silvio Gesell wrote. The problem with Silvio Gesell is that some of the Marxist criticism only applies to the brain dead ideas and people forget that there are four volumes of Das Kapital which means some of it is actually not complete garbage. The problem is that nobody has time to read the books.
Ironically, the first volume is the most popular and yet the worst of them all.
I found the historical context made it much easier to understand, and while I'm not a fan of Ferguson's politics - he is an excellent historian of finance.
This looks to be a potentially interesting article. I started scrolling. I kept scrolling. It is long. 23,000 words long. wordstotime.com says it will take roughly 3 hours to read.
Distrust any comment on the content that appears before the post is at least 3 hours old. Similarly how can we upvote it fast enough for the algorithm to not bury it before anyone has a chance to read it.
Imagine trying to comment on an academic research paper with a very clear abstract, just to be locked for 5 hours because of the 50 pages of the actual paper.
As someone who's read Lyn for a while, there wasn't too much "new" here. Strangely for it's length it felt like a cliff notes of some of her other pieces on bitcoin and petrodollars.
That said there is plenty here that people can engage with in good faith without reading it all word for word.
I've read Lyn a couple times - I can't quite figure out their general position. Seems somewhat pro crypto and also all for deep dive in the financial markets / some kind of contrarian position. You think that's fairly accurate?
I can't also tell if it's all somewhat promo for members area. As an economist, trying to understand the incentives.
I've always felt like Lyn asks 5 whys, and then possibly, how can we use this to make money. I'm not a subscriber so I dunno how profitable she is, but I think she usually tries not to push an angle dogmatically in most of her public writing which can be refreshing these days.
I didn't read the article, but I scrolled through it until I found the place where he answers the question in the headline:
What is money?
Well, the answer to that question ties into the difference between currency and money. Currency is some other entity’s liability, and they can choose whether or not to honor that particular liability. Money is something that is intrinsically valuable in its own right to other entities, and that has no counterparty risk if you custody it yourself (although it may have pricing risk related to supply and demand). In other words, Russia’s gold is money; their FX reserves are currency. The same is true for other countries.
Read it beginning to end first time I clicked the link. Yeah, it took a while. She summarizes several fascinating concepts in a fairly approachable manner.
Knew a lot of this already, picked up some new examples I hadn't heard of before. Feel like it's a good article for sharing with older-generation family etc.
> Distrust any comment on the content that appears before the post is at least 3 hours old
people who've studied economics formally already have a good grasp of what money is; as they read through the first few paragraphs of this they can see by its meandering where it may be headed. I don't plan to finish it.
I didn't vote, but my comment was in response to something that says "don't trust comments". If you see something off in the first paragraph, it's fair game to comment on.
> It’s also worth understanding Gresham’s law, which proposes that “bad money drives out good”. Given the choice between two currencies, most people spend the weaker one and hoard the stronger one.
Eh, that's not really Gresham's law, which applies when there is a fixed (by law) exchange rate between two currencies.
Quoting Hayek’s Denationalization of Money, “What Jevons, as so many others, seems to have overlooked,
or regarded as irrelevant, is that Gresham's law will apply only
to different kinds of money between which a fixed rate of
exchange is enforced by law.” (Emphasis his)
True. What actually happens, is the opposite, known as Thier's law[0]: "Good money drives out bad". When given free choice (free competition between currencies), people prefer to accept the good money, which eventually drives out the bad money from circulation. Or more clearly, the bad money loses demand and therefore its value.
You dont disagree with the author. The key phrase is "given the choice" from the consumer perspective. That people who sell will demand the stronger if they have the option isnt surprising.
With a free-floating exchange rate, the buyer wants to use the weaker currency and the seller wants to accept the stronger one. The seller can set prices in each according to his preference, and the buyer can decide which to pay vs. which to save according to hers. The market will discover an exchange rate between the two currencies accordingly, but no economic law dictates that one will drive out the other.
Gresham’s law applies when the seller is bound to a certain rate of exchange between the two currencies. The buyer will therefore pay in the currency she has the least desire to hold for the long term. As a result of everyone doing this, over time all trading will be done in the less-desirable currency.
In practice, you have to settle debts in the government dictated currency. Here Gresham takes hold, the valuable currency will disappear from circulation. Think silver dollars in the US with a higher material value then the nominal value. You still have to accept payment in any dollar so you wont spend silver dollars doing so. As long as you have the choice to sell it for material value. Think copper content in pennies for where this doesnt apply because its illegal to melt down.
Its all just a description of how the market (meaning people ) behaves once the government applies pressure in certain directions.
I was wondering about that just yesterday. "What are the value of those coins?" I thought. There seems to be a mint (episode 3), and the guy who runs the whole thing (the central bank) seems to live out in the desert.
Who sets the value? Can anything be money? (let's forget about the intrinsic value of the gold itself for a moment.).
It seems that these coins are used within the community of the criminals themselves and the bank sets their value. It also seems that the community can pay for things with fiat currency or these coins. And it seems that one can exchange these coins for fiat currency too.
The John Wick universe is an interesting example to see the practical use of another currency in everyday use embedded in a world of fiat currency.
But what really got me thinking (I know, late to the party)... money can be anything. Anything that a community decides what it is. As the community becomes larger it becomes more valuable, but also it comes with more problems too (the USD as example).
It's only implied, but the coins also bring a certain required 'illegitimacy' to a transaction.
ie, if I turned up with cash to organise a hit... you might wonder who I was and if I was a cop. But if I instead rocked up with mafia gold, well then I've passed the sniff test for being part of the underworld.
The author seems to overlook one of the fundamental purposes of money. Which isn't too surprising given her background, but somewhat disappointing given the topic of her site. That is, she ignores the role of money as a unit of account.
Traditionally, something is considered money when it can fulfil three functions:
1) Act as a medium of trade
2) Act as a store of (economic) value
3) Act as a unit of account
The last is critically important in the modern context because one of the fundamental uses of money today is to measure economic wealth/income/activity/potential. Many commodities can act as #2. Many abstractions can act as #1. Few things act as all three.
Did you read the article? Your original comment was just an implicit discrediting of the author. It’s hard to see how point is relevant to the main concepts of the ‘article’(small book). I’d be happy to hear your expanded thoughts on the implications of ‘that something can be used as a unit of account does not mean that it is used as unit of account’ has on any of the more interesting points at play.
I guess you didn’t read the article. A quick search shows she mentions it 8 times. Here are just a few:
> We can define currency as a liability of an institution, typically either a commercial bank or a central bank, that is used as a medium of exchange and unit of account.
> Central Asians at the time of Battuta, as a nomadic culture, used livestock as money. The unit of account was a sheep, and larger types of livestock would be worth a certain multiple of sheep.
> Prices of most things stay relatively stable or preferably keep going down as priced in the most salable good (such as gold, historically) over the long run, but go up in most years when measured in a depreciating and weaker unit of account such as the British pound.
I think a better categorization is to split things into "socially constructed reality" and "physical reality". Two types of "real". Money and God are solidly in the "socially constructed reality" type of "real." Light and Gravity are in the "physical reality" type of "real."
Things in the "socially constructed reality" category depend on network effects--who believes and upholds the truths within your network. That might map to your "float" values, as not all currencies are upheld by unanimous agreement within various networks.
There is a physical manifestation of something that we describe as light or gravity, but our understanding of those things is, in fact, socially constructed just like "money" (or really, an economy) is. We have an imperfect model of what both light and gravity are and we use that model to describe things we observe, but the map is not the territory and it's actually incredibly important to understand that.
In all three kinds of things, belief that something is true -- even mass, near unanimous, collective belief that it is -- does not make it so. That was true for Newtonian physics and gravity as it is for, say, the idea that "interest rates and inflation are connected."
Henry Ford "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
Yeah, the jewish conspiracy theories never made sense. If people with $1000 on their bank accounts want 3% interest they get $30, then they act surprised that this means that rich individuals also get 3% interest, which if you are a millionaire is $30k or 1000 times more. There's bound to be some jew millionaires or even billionaires because there are a lot of jews on the planet. Nobody cares about christian billionaires because they are too common.
It's kinda the same thing with land. Homeowners vote in regressive zoning and lower property taxes and then point the blame at high profile companies like Blackrock taking advantage of the same laws to boost their property values. A house price 20% increase is the same for everyone but real estate companies benefit more because they have more houses.
The fundamental problem is that everyone wants to benefit at the expense of other people and they let the big guys get away with it because restricting their benefit would restrict your own benefit.
This article distinguishes currency, for which that is true, from money, for which it is not. It is an idiosyncratic definition, but it is the one this article uses.
I think ultimately it's a useless distinction. People try to argue about "sound money" and all that, but more and more my view is that both the historical/anthropological evidence and the realities of our modern economic systems point towards the debt as money theory, and that sound money just doesn't really exist. Commodities like gold are commodities, and currency (which is money) is different.
> Kind of like how we don’t use Fedwire transfers to buy coffee, bitcoin base layer transactions are not well-suited to buying coffee. Visa transactions that run on top of Fedwire, or lightning transactions that run on top of bitcoin, can be used to efficiently buy coffee.
That is in interesting perspective. I always wondered how can BTC scale if the average folks cant use it to make instant payments.
Bitcoiners have been banging that drum for a long time, since the block size war and the inception of the Lightning Network. Takes a long time for the message to spread outside the Bitcoin bubble because Bitcoiners are largely ignored by the wider community.
Money is a form of energy, where conservation and the laws of thermodynamics apply. I'm surprised that there isn't widespread understanding of this.
The common understanding appears to be that money is just an imaginary human-thing and that often "we would be better off without it".
Consider the case of a crypto mine being established in a remote and isolated location in the desert (or on the moon) with plenty of sunshine and solar power. As long as the mine has an internet connection, it can use the available solar energy to mine crypto and send them to anyone on earth. This physically results in the mine being able to transmit energy wirelessly across vast distances.
Almost like magic.
Sure, it's not in an electrical form and there is energy loss, but at the end of the day, the result is a very real physical capacity to do work.
The laws of thermodynamics do apply, which is why this sentence:
> This physically results in the mine being able to transmit energy wirelessly across vast distances.
...is complete bunk. No energy is transmitted when you mine and then transact in Bitcoin: you've used the energy to produce a proof of work, one that others arbitrarily value and exchange for different energy.
Restructured: it should be clear that no trust scheme can magically transfer energy; it can only transfer tokens than can be exchanged for energy. In other words, any trust scheme that has extraordinary power requirements is strictly worse than one that only consumes energy once (i.e., when ultimately purchased).
>Consider the case of a crypto mine being established in a remote and isolated location in the desert (or on the moon) with plenty of sunshine and solar power. As long as the mine has an internet connection, it can use the available solar energy to mine crypto and send them to anyone on earth. This physically results in the mine being able to transmit energy wirelessly across vast distances.
When the person wants to spend the crypto to get energy later, then new energy still has to be produced in addition to the energy used for mining (either by burning fossil fuels or using some of the capacity of renewables). If they're producing 100 units of energy to run their miner to get enough crypto to buy 100 units of energy later, then there's twice as much energy having to be produced than if they didn't run their miner.
Money is a tool for humans to allocate resources between themselves. It's not energy storage.
If there was only one person on Earth that could freely use any resources available to them, then they wouldn't ever have any use in "saving up energy" by crypto-mining to spend later because it's not saving up energy. It's making energy and spending it on IOU notes to trade to other people for energy they make. It's only when you add other people to the system that it makes any sense to do. Though ideally, the people would be able to coordinate together to come up with a solution that doesn't involve twice the energy being made with half of it going into making IOU notes.
I think it is actually a valid criticism of mainstream macroeconomics that they mostly ignore thermodynamics and energy. But the 'cryptocurrency is energy storage' just clearly errs far, far more in the wrong direction, given that (assuming PoW), the energy is permanently consumed in using it, and even more energy is consumed in transacting, with no energy actually ever being able to be returned.
You can't say that something that uses a huge amount of energy, and then lets you pay for even more energy to be used has "transferred" that energy, it's just unnecessarily consumed much more energy than was required...
"money is a form of energy" is nonsense. yet it is an interesting kind of nonsense that contributes to the discussion.
I think it makes more sense to regard money as a kind of messaging technology that enables decentralised coordination and prioritisation of economic activities in the real economy. But you have to remember that the messaging technology of money is not itself the real economy. It is certainly not energy. Messaging and coordination systems cost energy to run. Adding a better messaging and coordination system might allow a society to run its real physical economy more efficiently, but the messaging and coordination system in itself does not produce energy.
Here's a dumb thought experiment:
Suppose there is a pre-industrial society on island A. The economy is based on agriculture and livestock. The citizens of island A society develop a system of currency using conch shells, which they can use to track debts accrued and favours owed. Adjacent to island A is the nearby uninhabited island wilderness of island B, filled with natural resources. Inconveniently, a very deep 20 metres wide chasm separates island A from island B. After years of effort with several fatalities and misadventures, the citizens of island A manage to traverse the gap and build a sturdy bridge allowing people, livestock and goods to cross. Some economic activity spreads to island B, but the terrain is not productive for livestock and livestock remain on island A.
You are one of the pioneers on the frontier of island B, attempting to establish a farm. You would like to rent some of the livestock belonging to your business partner on island A, to provide energy to clear land and establish your new field more easily.
Calamity strikes: there is an earthquake which causes bridge between island A and island B collapses! People, livestock and large trade goods can no longer cross the chasm until the bridge can be repaired. However, the gap is small enough to communicate across by shouting. If you really want, you could also bundle up a sack of conch shell money and sling it across the gap.
Rather inconveniently for the pioneers on island B, there were no livestock on island B at the moment the bridge collapsed.
Even without a bridge, to hire your business partner's livestock, you are still able to make a payment of money across the chasm to your business partner. You can choose to sling over a bundle of money across. Alternatively, the central bankers of island B and island A can shout across the 20 metre gap to negotiate the transaction and ensure the transaction is recorded consistently in each island's clay tablets in the traditional manner (Paxos).
However, there is no way for your business partner's livestock to get across the gap until the bridge is reconstructed. It may take years of very dangerous work to rebuild it.
The system of money and financial transactions still functions across the chasm, but it is completely unable to transfer livestock-powered energy.
The messaging & debt-tracking system (conch shells, clay tablets, shouted agreements) is not the same thing as the real economy (oxen energy to plough your fields).
I share a similar belief . I think we can have physics like discussion for money . where joule ~ money and joule / sec ~ value , i am making a distinction between money and value where money is more discrete(quantized) and value is continuous . The second secret ingredient is compute. OP(like FLOP) ~ money and OPS ~ value . putting it together we get , M = OP * E * K where OP -> total no of operations E -> energy spent K -> some constant . Dimensionally money has same SI unit as Joule , Total operation is a dimensionless variable . V = M / T {having same SI unit as Watt} value is money per unit time and Goverments / services / business should be seen as value generators the same way we describe the power of an engine as horsepower or watts .
This model is completely different than market analysis of prices / value . Not to mention that majority of value traded is done outside of open markets .
This model makes the assumption that all players in the value chain (producers and consumers) are agents with repeatable instructions ie put,Get,push,add,mov,etc.
Since there is No SI unit for instructions I propose the Unit for measuring instructions be MOV operator , This is because of my belief taking inspiration from the X86 MOV operator which was proven to be turing complete with the movfuscator(https://github.com/xoreaxeaxeax/movfuscator). What this means IMO all computable operations can be broken down to move operations.
Lastly this system views markets as interaction between agents . And makes the assumption that agents that do not sustainably price their goods / services will fail to operate in the longrun. And views variance / volatility in prices as a outcome of chaotic interaction between agents rather True indicator of value.
There are many ways to think about it, but one I find amusing is that a national currency is a federated system of many smaller currencies that trade at par.
Paper money is clearly not the same thing as an electronic record in a bank account. Paper can't be stored in a database. They are kept equivalent because banks (and people) trade them at par, for example using ATM's.
Each bank (including central banks) has its own computer system for its accounts. Bank account money never leaves a bank's computers. There's no way to get it out of the computer, any more than you can remove your virtual treasure from an online role playing game.
So this seems like a good way of thinking about what happens when a bank creates money. They can create virtual currency in their own computer system, not in anyone else's. It doesn't make them richer, any more than a game company creating virtual gold pieces makes them richer. The money is either meaningless (if held by the bank itself) or a liability (if it belongs to a bank customer). To a bank, only outside money counts as wealth.
Transfers happen via trades. To pay anyone not using the same computer system, a bank needs outside money of some form.
So inside money and outside money are clearly different. To a customer, money in Bank A might seem equivalent to money in Bank B, but to Bank A, only dollars in Bank B are assets, and to Bank B, only dollars in Bank A are assets.
So, one way to approach the "what is money" question might be to look at payment systems. How is it that all these different sub-currencies are made to trade at par?
Realising this is what made money a lot easier to understand for me, and simplified the difference between different kinds of money. In the end its easier just to think of them as different currencies with stable pegs. It answers questions like - how can the banks issue money? Of course some of them are easier to exchange with (e.g. bank credit over notes) and this makes them more useful in trades.
For example (bank money = real money) only because the bank is willing to keep the peg at (1.00 bank credit = 1.00 real currency) as you state whenever you use an ATM, take money out at the counter, etc. When the bank runs out of real money to maintain this peg it can and has deviated in the past (e.g. people selling their bank accounts at say 30c to the dollar in the great depression). In normal times however their much smaller money stock is enough to keep the peg going against the usual net deposit/withdrawal flow.
Of course if a central bank comes in and can lend that bank unlimited real money the peg could be maintained. Indeed that can and has happened.
There are some ideas to implement negative interest rates on bank accounts only but keeping cash by introducing a second cash currency that explicitly does not follow a stable peg. I.e. inflation targeting only has to be done on cash not bank accounts. Bank accounts will get price level targeting which means no inflation.
I guess what I don't understand by this proposal is how the exchange rate is actually maintained. Will they print a lot more cash to keep the exchange rate depreciating as thus? The devil will be in the detail of this.
She doesn't mention the whole tether fiasco at all, which is the strongest point against bitcoin currently in my opinion.
Tether is a completely unregulated de facto 'bank' that makes up a very significant portion of the demand for bitcoin. If that blows, bitcoin will inevitably go with it.
Buying bitcoin is betting not on bitcoin, but on tether.
Doesn’t quite ring true to me. Bitcoin was blowing up in price way before Tether came around. Although the Tether setup is shady, it’s not propping up Bitcoin. I would rather say that when Bitcoin falls next (it does in cycles) then Tether may collapse.
By 2014 BTC had already gone up from $0.0000000001 or something like that to $30. To be conservative you could use the early exchange prices of $0.10 or so. Do the math. It was blowing up way before Tether. Yes, Tether is one of the biggest frauds on the planet right now. I repeat, Tether’s fall would not cause the collapse of Bitcoin. These other comments saying “oh it’s smaller than usdc so btc would be fine” are even missing the point. It’s like nobody can mentally conceptualize an asset that has gone up 100,000% or much, much more. $1000 spent on MtGox in the early days would be over $200,000,000 today. It’s not one coin or one tweet or one company driving that absolute monster of speculation. But in my opinion Bitcoin’s collapse, a real one that goes to zero, would represent such a significant shift in the upward paradigm that it would mean the end of every single other cryptocurrency in their current iteration, including Tether and even Vitalik’s world computer. They would return in another form. Just my thoughts.
You might be working on old information as the crypto industry has largely diversified when it comes to stablecoins and Tether is now actually #2 to USDC which is fully backed. [https://www.defipulse.com/usd]
If Tether fails it would definitely hurt but it's not an existential threat to crypto.
This measures total value circulating. In terms of market cap, Tether still has a pretty clear lead (though I suspect USDC will flip it within the next 1.5 years, and UST in the next 3-4 if it doesn't go into a death spiral before then)
Tether is not even like a 'de facto "bank"'. Actual (modern, regulated) banks need to have all their liabilities (i.e. deposits) backed 100% with assets. This includes capital, liquidity assets like bonds and reserves, but mostly loans. Banks can and do originate money by issuing loans (creating a debt and a deposit in equal amounts), but if they don't have at least a decent chance of being repaid (and enough capital/insurance to cover defaults) then they are insolvent.
The difference with Tether seems to be that they appear to be creating the deposits (tether) without any evidence of actually having or creating enough assets to cover it all (either having money in the bank, or writing decent quality loans to back it).
Central bank reserves aren’t the only assets that exist. Most countries already didn’t have a reserve requirement. CBRs are mostly required just for liquidity for interbank payments.
Banks that don’t have assets to cover all their liabilities (deposits) are insolvent. Non-delinquent loans are assets to the bank (liabilities to the customers) that are created when banks lend and create money (which become deposits - which are liabilities to the bank and assets to customers).
Only the central bank can originate money without creating debt.
Even the central bank can't originate money without creating debt. That's what money is, an exchangeable claim to resources, or assets. With base money, and the physical currency people hold in their wallet, the claim is notionally against the central bank's assets, that "back" the money and underly its value.
If you're worried about Tether, then you should be worried about the whole financial system. It's not very different from Tether, and that is one of the reasons why Bitcoin was created in the first place.
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
Tether dominance in stablecoin land is down to like 40% or less. USDC alone is close on the heels of marketcap and nobody has issues with that one.
For Tether fear uncertainty and doubt, you kind of need to make a standard of where it stops being top of mind. Even Tether’s problems are only that its maybe 70% backed by fiat in a bank account, not like 10% or anything similar to the broader financial system.
I think the author meant to put this in the crypto section:
> During World War II, when the Japanese Empire invaded regions throughout Asia,
> they would confiscate hard currency from the locals and issue their own paper
> currency in its place, which is referred to as “invasion money“. These
> conquered peoples would be forced to save and use a currency that had no
> backing and ultimately lost all of its value over time, and this was a way for
> Japan to extract their savings while maintaining a temporary unit of account
> in those regions.
The author also fails to cover fraud and wash trading. Besides Invasion Money, Crypto is the only other thing on the list where debts can disappear without any transfer of value.
I found this a thoughtful and informative read, and I especially like the term “proof of force” to describe fiat currency, which I hadn’t heard before.
I don’t think this is going to significantly change the way most people on hacker news think about bitcoin, but I will say that it changed my perspective on the problem of network scalability.
If you think of Bitcoin not as competing against Visa, but as competing against the bank settlement network, then it makes a lot more sense.
> If you think of Bitcoin not as competing against Visa, but as competing against the bank settlement network, then it makes a lot more sense.
Yes, this is Bitcoin precisely. If you then lock your bitcoins in different schemes with different security models or transaction amortization tradeoffs, you carry the risk of the scheme, not the settlement layer and unit of account. You can experiment with different forms of commodity money, fiat money, and all the monetary policy therein and the proof will be in the pudding of who ends up with more of the underlying, finitely scarce coin, but you can never risk anyone's coin that doesn't join the scheme.
As someone who's into economics and finance (as well as cryptocurrencies), I'm less concerned with what everyone thinks about Bitcoin and a lot more with what they know about money in general. It's scary when you first realize most people have no clue how our civilization works and what holds it all together. This is a very fragile system, it benefits those with money/power, but it's also ripe for disruption because it's not consciously supported by the majority of the world's population.
How can someone go through life and never ask themself what money is, where it comes from, why their paper bills keep getting worth less year over year... Most of us consume things on a daily basis, but never stop to think what actually happens there, where the value of the money comes from, what determines the price of the product, etc.
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[ 3.6 ms ] story [ 316 ms ] thread* https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years
Money: The True Story of a Made-Up Thing by Goldstein (also of NPR's Planet Money):
* https://www.goodreads.com/book/show/50358103-money
* https://en.wikipedia.org/wiki/Jacob_Goldstein
And The Power of Gold: The History of an Obsession by Bernstein:
> In this exciting book, the late Peter L. Bernstein tells the story of history's most coveted, celebrated, and inglorious asset: gold. From the ancient fascinations of Moses and Midas through the modern convulsions caused by the gold standard and its aftermath, gold has led many of its most eager and proud possessors to a bad end. And while the same cycle of obsession and desperation may reverberate in today's fast-moving, electronically-driven markets, the role of gold in shaping human history is the striking feature of this tumultuous tale. Such is the power of gold.
* https://www.wiley.com/en-us/The+Power+of+Gold:+The+History+o...
* https://en.wikipedia.org/wiki/Peter_L._Bernstein
Bernstein was also the author of Against The Gods: The Remarkable Story of Risk.
I also recommend “The Invention of Coinage and the Monetization of Ancient Greece”. It succinctly covers second order effects of money. I got a good understanding of histories of phenomena that we take for granted such as salary. It’s fascinating to read about the transition.
As a meta, I’ve been fortunate to witness a similar momentous transition computers and internet/communication. I wonder what other transition we are going through right now.
Seconded ^_^
I have read Graeber's Debt and it's a great book but always thought that it left out many so questions unanswered. His anthropological treatment of money is quite nice until feudalism, but when he starts explaining the start of the Enlightenment and the gold standard in Europe things seemed very rushed and inadequately explained. Also it only touches upon our current system (post-Bretton Woods neoliberalism) briefly in the last chapter, which was a letdown since I though Graeber would have many comments about our current configuration of society.
Another book I’d like to throw into the mix here: Central Banking 101 [0]
Fantastic overview of how the current central banking system works, written post-Covid so it has some context for the extensive QE that’s been happening over the last 2 years. Author worked on the Fed’s trading desk for over a decade in various capacities so he has a deep experiential knowledge of the plumbing in action.
[0] https://www.amazon.com/Central-Banking-101-Joseph-Wang/dp/09...
If anyone wants a quick '101' primer on monetary systems, Cullen Roche has a good paper:
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
As does the Bank of England:
* https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
Graber misinterprets the history and ideas of mainstream economics, calls the safest securities on the planet a debt that will never be paid and spins bizarre conspiracy theories about the Iraq invasion. You might learn about the quaint cultural practices of remote tribes but I strongly disagree that it is a good book to understand money in the real world.
A far better resource is Perry Mehrling's Economics of Money and Banking course: https://www.ineteconomics.org/education/courses/the-economic...
I can totally get down for this interpretation. When you think of Humanity (collectively-singular) as an entity destined to invent everything, we will obviously eventually invent the concepts of money, interest, debt, etc. The money can reproduce faster than Humanity can, so we're effectively in debt to ourself and have spent so many years trying to pay it off that we've forgotten we're truly One.
And that is not what Graber is talking about. The point was about US Treasuries. Everyone treats them as cash equivalents because nobody believes that the US Government will default. But Graber says and I quote:
> American imperial power is based on a debt that will never-can never-be repaid. Its national debt has become a promise, not just to its own people, but to the nations of the entire world, that everyone knows will not be kept.
And this is the kind of nonsense that is sprinkled all over the book.
And if I Google "united states per capita debt", I see a box:
So, one theoretically could reduce debt with tax payments. But it doesn't appear to be the current or historical plan.I guess this comes down to semantics. Paying off an old loan with a new one isn‘t ”paying off your debt“ in my eyes. You are still in debt afterwards.
The total amount of debt will never come down again without hyperinflation. Whether that is good, bad, or doesn‘t matter is up to economists. But that‘s how it is.
Graber's point is primarily about foreign holders of US debt and how this is the American empire extracting tribute from its vassals. Whether America is debt-free or not really relevant.
In the context of meeting obligations to creditors, which is what is being discussed, it absolutely is.
> The total amount of debt will never come down again without hyperinflation.
What has fundamentally changed since the last time it did which was (checks) Q2 2019?
> Whether that is good, bad, or doesn‘t matter is up to economists. But that‘s how it is.
There is very little reason to believe that. In fact, to the extent that the debt and inflation are related, the same acts which drive the debt up drive inflation, not the other way around.
so what? Have they missed an interest payment? Is their economy unproductive and cannot pay the interest?
Having the debt means you are entitled to a portion of the economic output of the machine behind that debt. Why is it a must for the debt to be repayable in one go? Esp. if the debt was not all issued in one go?
each time a particular treasury bond is due in full, the US treasury has been able to repay it. Whether they repay it by issuing new bonds, or increase their taxes and pay it off, makes no difference to the holder of that bond.
[0] https://www.longtermtrends.net/us-debt-to-gdp/
Ironically, the people that are most opposed to MMT on the basis of outright lies about its content are the people that are most likely to argue against large deficits on inflation grounds even when there is no problem borrowing enough money to fuel it.
October: +100, finally paid back the 100 taken in March.
Anothet option: you have multiple personalities.
Btw. Semi joking
If you incur debts to your body, you'll pay for them in the future.
If we squander intergenerational assets, our children will pay.
The US already defaulted on their gold promises.
Right. So this supposed "revelation" that fiat money is debt created by elites out of thin air, has been the hocus-pocus story that every goldbug, sovereign citizen's movement and crypto-coin huckster has memorized to absolutely wow the gullible with conspiracy theories for the last 100 years. It's a guaranteed way to make a (fiat) buck if you sell a book along these lines.
But the ridiculous thing is, in every situation other than US dollars, all people understand that buying debt is gambling on the risk of not being paid back. Whether you're buying some Argentine note that pays 30% or a municipal bond (or a war bond) or a ticket to see a movie in a theater that might close next week, you understand that the paper is worth more at maturity but it comes with risk. Everyone outside America who actually buys US debt fully understands this and makes the risk calculation, so how is it that average slackjawed Americans are just dumbstruck, generation after generation, year after year, by the notion that their evil government or central banks together are pulling off some sort of fast one on the rest of the world? No one buys this shit who doesn't weigh the risk. To whatever extent it's a house of cards, that's on the investors anyway, so there's no reason the average American should trouble themselves about it until/unless they need to learn what a national default looks like.
At the level of the world's biggest economies, the concepts of debt (bonds), money, and interest rates are more abstract economic levers that central banks pull in order to keep economies chugging. They're not really the same things they are to individual people and corporations, e.g. in the way debt can cripple someone's finances.
The central banks and governments are the game masters who set the rules and issue tokens, and we're the players interacting within the game and responding to the environments that they create.
To restate: bonds and other loans are literally a policy tool to take in USD from or inject USD into circulation, in order to intentionally change the size of the money supply: "Open market operations (OMO) refers to a central bank buying or selling short-term Treasuries and other securities in the open market in order to influence the money supply." It's not like the central bank actually needs to borrow USD from the money supply; it's literally the issuer of USD and could create more at any time (or take it in and destroy it).
Why can the US do this? Because its bonds are denominated in its own currency, which world investors use. The demand for USD-denominated debt is a major benefit of the USD being the world's main reserve currency.
Interestingly, you can see the emergence of small-scale credit forming with things like how a group of mutual friends splits the tab when going out to meals. "I'll get mine, you get yours" doesn't usually survive as people get to know each other and start interacting more regularly, rather it's "I'll get this time, you get the next time", and it all works out as long as everything feels fair, because everybody has a pretty good memory for when they get shafted.
Not just humans. Chimpanzees demonstrate jealousy or a sense of fairness in experiment. I'm pretty sure I've seen dogs show it, too.
Is exactly my point which is why said that Debt is a terrible book to understand money in the real world.
> deserves props for debunking the myth of barter coming before credit
Do you think Graber came up with this? Or that this wasn't the mainstream view amongst economists? Allyn Young wrote matter-of-factly about it for a popular science book in 1924[0]. And I don't mean to say he was the first one to realise this, I'm saying this was a common view. And Young wasn't some avant-garde heterodox radical. He was the president of American Economic Association. It doesn't get more mainstream than that!
And this what I mean by misrepresentation of the history and ideas of mainstream economics. And Graber doesn't stop there. He pretends like somehow all of economics is hinged upon this Myth of Barter.
Adam Smith is not the supreme arbiter and law-giver of economics. FWIW, Graber's critism of Adam Smith in this instance is justified. But as is typical of Graber, he doesn't stop there. He goes on to say thet Adam Smith's famous "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest" thesis is wrong because shopkeepers of the time mostly sold goods on credit and thus the customers were in fact depending on their benevolence.
If credit was benevolence, that would make banks the most benevolent entities on the planet.
0: https://d396qusza40orc.cloudfront.net/money/readings/Allyn%2...
It's not necessarily wrong though. Giving credit can still be a self-interest motivated action, in fact it would most often only be that - generating a higher reward to the risk taken by giving it - as banks try to manage. So yes, banks aren't run by benevolence, and they aren't the most benevolent entities on the planet (far from it) - they're just economically rational actors, that are benefited by offering credit.
Or did I misunderstand your comment?
I had forgotten about the Wizard of Oz bit! I don't recall if it was meant as an aside or it was meant to support a larger point about public opinion of bimetallism.
The bulk of the middle section of the book is mostly just meh. The final chapter though is something to behold! It's comically bad.
The book remains fairly popular in certain circles. If not for anything else, read it so you can politely refute the person who brings it up at a party.
The Wizard of Oz bit is mostly color, but he relates it to the difficulty state-money theorists have had in coming up with similar narratives, and also that the myth of barter has persisted for lack of a similar anthropological myth for money.
https://economics.rutgers.edu/joomlatools-files/docman-files...
L. Frank Baum's The Wonderful Wizard of Oz, however, is not only a child's tale but also a sophisticated commentary on the political and economic debates of the Populist Era.1 Previous interpretations have focused on the political and social aspects of the allegory. The most important of these is Littlefield ([1966] 1968), although his interpretation was adumbrated by Nye (1951), Gardner and Nye (1957), Sackett (I960), and Bewley ([1964] 1970). My purpose is to unlock the references in the Wizard of Oz to the monetary debates of the 1890s. When the story is viewed in this light, the real reason the Cowardly Lion fell asleep in the field of poppies, the identity of the Wizard of Oz, the significance of the strange number of hallways and rooms in the Emerald Palace, and the reason the Wicked Witch of the West was so happy to get one of Dorothy's shoes become clear. Thus interpreted, the Wizard of Oz becomes a powerful pedagogic device. Few students of money and banking or economic history will forget the battle between the advocates of free silver and the defenders of the gold standard when it is explained through the Wizard of Oz.
The Wikipedia article is actually pretty good overview: https://en.wikipedia.org/wiki/Political_interpretations_of_T...
By misrepresenting what economists actually believe? How exactly did that improve the public discourse?
However, what does it even matter, when the zombie keeps walking to this day? The linked article repeats the myth of barter.
And lest people think it's only right-ish economists that keep repeating it, Yanis Varoufakis did so too (in his book "Talking to my daughter about the economy").
And yeah sure, nothing "hinges" on the myth of barter. But it is a symptom, a glaring illustration that economists are really bad at arguing from how real people actually act, and cheerfully embrace just-so stories that support their preferred ideas - which is the linked article's whole game, too.
I didn't say Graber claimed that. I was refuting the common defence of the book and emphasising that it was already a mainstream view.
> However, what does it even matter, when the zombie keeps walking to this day?
> But it is a symptom, a glaring illustration that economists are really bad at arguing from how real people actually act
How much does the historical origin of money matter to the understanding economics of today?
Economists aren't particularly interested in the origin of money. Any references to barter are usually in fluffy lines like this article or as dumb thought experimens. The fact that some of them get it wrong is not indicative of anything.
> cheerfully embrace just-so stories that support their preferred ideas
Which is rife across the humanities and not exclusive to economics. Hell, Graber's entire book is full of just that.
If you look at popular books or even school text books, they will cheerfully claim that seasons are caused by the change in distance between the earth and the sun. That doesn't mean people working on climate models don't know that's not the case.
And Varoufakis is <insert polite term for crackpot>, not exactly representative of mainstream economics.
That said, I do think Graeber is right to emphasize the role of culture and belief--anthropological ideas--as an antidote to overly quantitative/mechanistic models. I'm not an economist, but it does seem like behavioral economics was pretty revolutionary in advancing the idea that humans are not just rational utility maximizers, despite Keynes using the term "animal spirits" nearly 100 years ago.
Again, speaking as a layperson, it's frankly a bit weird to me how distant economics, anthropology, and psychology seem to be from each other.
This is a false and misguided dichotomy. Nothing prevents you from taking culture and beliefs into account when you create a model.
Labor search models usually have a notion of bargaining power.
"Just-so stories that support their preferred ideas" + "so nothing prevents you from taking culture and beliefs into account when you create a model."
A litte OT but,... years ago i read a HN-Topic, about um 'What to change if we could'. I read some postings, where people seem realy angry with abuse, misuse and malpractice, done by people who may or even may not wanted to be remembered as: 'This is our work, we do this cos we are in empowered to do so' (won't explain it more, back to more context:)
My conclusion by that time was, questioning: 'Is privatizing favourable?' Cos there is confusing data, complex situations and a need for easy hypotheses...(and solutions maybe) The assumption that time was, that the gov spend a (huge) budged to pacify many more conflicting 'partys' than a private entity would like to do/or will, cos generating income through excessive spending (may 'only work when'/'need expotential growth') means nothing more than the need to reinvest profits to bigup the businesses.
(sry, non native english-speaker)
And now really OT, I remember some of the friends around Putin are building contractors, and the TV-shows about the war in Ukraine or Syria before um...
[turns-around-in-a-circle] (-;
How I understood your comment: "This whole field, consisting up of many people trying to do understand things, is just a bunch of nonsense generalizations."
This is a relatively fair take. That being said, at least it's damaged and dethroned the equally misguided frictionless spheres of homo economicus.
The idea that humans are not perfectly rational self-interested actors has been part of mainstream economics at least since Keynes.
Is it the whole story? Probably not. Like I said, I'm not an economist.
But given the extreme challenges in empirically testing macroeconomic models, it should be no surprise that economists might--as somewhat irrational humans--over-rely on theoretical models.
A lot? Money is a social construct, so the history of money is something like a record of empirical observations that must be accounted for by any proposed theory of money. The fact that most modern economists don't seem too concerned with this doesn't mean that it's not important.
My favorite course I took in college was historical linguistics. But I was a linguistics major…
I do expect CS students to take a history of computing course.
Maybe it's interesting to linguistics majors but the rest of us tend to ignore typos when the meaning is clear from the context.
> My favorite course I took in college was historical linguistics.
And?
> I do expect CS students to take a history of computing course.
The overwhelming majority of them don't and seem to do just fine.
The idea that Varufakis is not mainstream is not even remotely controversial. I have issues with Graeber's misrepresentation of economics, not his anthropology.
You can tell that Graeber isn't an economist because he mistakes the oversimplified educational narrative for what monetary economists actually believe about the history of money and credit. But you have a fair point--even economists often fool themselves about this, possibly because the field has grown to the point where many aren't as familiar with this topic as they should be (I don't think that was the case 100 years ago).
A moral justification for what?
I believe Graeber acknowledge that Marcel Mauss came up with https://en.wikipedia.org/wiki/The_Gift_(essay) long before him ("1925 essay by the French sociologist Marcel Mauss that is the foundation of social theories of reciprocity and gift exchange")
The myth is certainly taught by mainstream economists, here is one example:
http://www2.york.psu.edu/~dxl31/econ14/lecture18.html
>And Graber doesn't stop there. He pretends like somehow all of economics is hinged upon this Myth of Barter.
I think he was specifically targeting neoclassical economists. The idea of Homo Economicus is essentially rooted in a number of myths that depict humans as spherical cows, Adam Smith's story of money emerging from barter being just one.
>Adam Smith is not the supreme arbiter and law-giver of economics.
Nope, he just has an unusual take because his analysis is more rooted in historical and anthropological study and, of course, he's kind of left wing. This angers people who try to gatekeep economic thought, limiting it to the likes of neoliberal (but still somehow mainstream) ideologues like Mankiw or Milton Friedman.
I guarantee that when David Koch made an large donation to Florida State U economics department he didn't do it with the idea that they would teach more Graeber.
Can you please state what you think the supposed myth actually is? I'm asking because people seem to have very different ideas about what it actually is as seen in this very thread.
> I think he was specifically targeting neoclassical economists.
Quoting Graber:
> The answer seems to be that the Myth of Barter cannot go away, because it is central to the entire discourse of economics. Recall here what Smith was trying to do when he wrote The Wealth of Nations. Above all, the book was an attempt to establish the newfound discipline of economics as a science.
> Nope, he just has an unusual take because his analysis is more rooted in historical and anthropological study and, of course, he's kind of left wing.
I'm sorry, Adam Smith is left wing?
>I'm sorry, Adam Smith is left wing?
I was referring to Graeber. He was left wing and anticapitalist.
Orthodox (neoclassical) economists like Mankiw tend to be very strongly pro-corporate due to way funding flows in the profession.
Interesting. Did you actually read Debt? Because Graeber himself says that economists don't claim a barter system as a historical fact:
> It's important to emphasize that this is not presented as something that actually happened, but as a purely imaginary exercise.
As I suspected, it seems you're arguing something else entirely
I lifted a different example from some other lecture notes in my link above where they just flat out said "this is what used to happen".
Really, there is no shortage of examples. It's the same myth in all cases, (although I wouldnt be surprised if some econ textbooks got patched since the book came out).
Im not sure exactly what youre trying to prove here. The distinction you're trying to highlight is hardly material.
Yes, I obviously did read the book. I also used to believe the myth because I first read it in an undergraduate econ textbook.
> It's important to emphasize that this is not presented as something that actually happened, but as a purely imaginary exercise. "To see that society benefits from a medium of exchange" write Begg, Fischer and Dornbuch (Economics, 2oos), "imagine a barter economy. " "Imagine the difficulty you would have today," write Maunder, Myers, Wall, and Miller (Economics Explairzed, 1991) , "if you had to exchange your labor directly for the fruits of someone else's labor." "Imagine," write Parkin and King (Economics, 1995) , "you have roosters, but you want roses".
He quotes Stiglitz after this and remarks:
> Again this is just a make-believe land
Before claiming it's the same myth it's necessary to clarify what the myth actually is and why it supposedly is so important for capitalism.
> Yes, I obviously did read the book. I also used to believe the myth because I first read it in an undergraduate econ textbook.
In a deleted comment you claimed you read it in Mankiw. There it is most definitely presented as a thought experiment asking the reader to imagine the inconvenience of barter.
A) it's been presented as both. The example you pointedly ignored that I posted above is one such example.
B) It's not really that material. The story serves the same purpose either way - both in the above example and in, say, Stiglitz.
>it's necessary to clarify what the myth actually is and why it supposedly is so important for capitalism.
It is which is why Graeber did explain why it's important.
I thought you read the book?
>In a deleted comment you claimed you read it in Mankiw.
After writing that comment I double checked the 8th edition of the text to see if i remembered correctly and ctrl-f and found zero about barter in the whole book so I guess we both misremembered.
I cant honestly remember which econ textbook I read it in since it was 16 years ago, but I do know that I read it and believed it and there are plenty of other examples that can be found via google, so whatever.
Nobody thinks this is the mainstream consensus view, not even Graeber.
> The story serves the same purpose either way
> It is which is why Graeber did explain why it's important.
The whole thread is about why Graber's just-so explanations are wrong. And your arguments are materially different from what is actually in the text.
> I guess we both misremembered.
From The Principles of Macroeconomics, 3rd Edition. Chapter 15 - The Monetary System
> The social custom of using money for transactions is extraordinarily useful in a large, complex society. Imagine, for a moment, that there was no item in the economy widely accepted in exchange for goods and services.
This borders on conspiracy theory. I was in an econ PhD program for years (though I never quite finished the dissertation), and trust me, economists working in the neoclassical tradition do not need corporate funding to be right of center. Most academic economists aren't getting corporate funding.
And there are plenty of left-wing economists whose work is nevertheless mainstream in the sense of living within the neoclassical paradigm.
> The myth is that barter arose spontaneously throughout history and that currency arose as a more efficient means of mediating barter.
Economists mostly don't care how money arose, and 99.999% of theories in economics would be unchanged if money arose after barter, after credit and debt, or as a result of aliens implanting the idea in ancient peoples' brains.
I find it overwhelmingly ironic that economists consider "people respond to incentives" as a fundamental building block of economic theory but when the topic is "do economists respond to incentives?" the answer is no, they are only interested in truth.
>Most academic economists aren't getting corporate funding.
Most programmers arent employed by FAANG but that doesnt stop armies of the ones that arent from idolizing the goog. Using money to build prestige that goes with money does a better job than straight up bribery.
Economists are the best paid social scientists by far thanks to the injection of money. Having a seat at the policy table has its advantages - advantages that anthropologists dont get.
>And there are plenty of left-wing economists whose work is nevertheless mainstream in the sense of living within the neoclassical paradigm.
I wonder if you are using, say, Paul "footsoldier of the DNC" Krugman as an example of "left wing" here because I cant think of any.
>Economists mostly don't care how money arose
The book addresses this point and explains why Adam Smith (and subsequent thinkers) did care. It's worth a read.
If people aren't qualified, as opposed to having credentials, to understand and comment on a subject, they should get a good co-author. Because the look at monetary policy through the ages is a very interesting one. If the authors do have an actual grip, and the ability to explain things to the layman unless we talk about dry scientific books, of the subject. If they don't it's just pseudo-science sold with confidence.
* Interestingly, I think that was meant as exculpatory for economists, which is itself a bit revealing.
And it would have been fine if Debt stuck to the anthropology. But perpetuating inaccuracies about money can be actively harmful.
For example, I-series bonds are the safest instruments available to US residents to hedge against inflation. Now, in popular conception, if US treasury bonds are seen as a debt that will never be paid, people might instead put their savings into assets that are suboptimal. You already see gold shilling targeted at senior citizens which makes for a terrible investment.
That the national debt will never be "paid off" is hardly inaccurate. It's barely even controversial. It wouldn't be a good idea either.
Hell, I remember the news articles from the 90s during a brief period of budget surplus that fretted about what pension funds and insurers would do if they couldnt buy t bills any more. The mask briefly slipped as the reality of the national-debt-is-basically-just-a-savings-account before we returned to our regularly scheduled implied bankruptcy doom-mongering and budget ceiling theatrics.
So overall, debt isn't paid back. The particular debt is paid back very much indeed. And whatever was paid for with that debt is ideally here to stay. National debt isn't anywhere close to private debt or a mortgage. Looking at it that way is just wrong.
By no account do I understand monetary theory or how national debt works in detail. I know enough to understand that it is a very complex topic, one that isn't easily understood. So I am cautious when it comes to easy explanations.
In fact, you probably don't want the public debt to be payed.
If debt is a liability, that means that is also an asset of somebody. In the case of public debt is an asset of the private sector. A country without public debt would mean those senior citizens wouldn't have safe assets.
Also, a reduction of public debt means a lower deficit, that means less public expenses, that means, or a GDP fall or a higher private debt. Everything has to balance.
Not debunked at all. How do people even agree what things are worth in order to offer credit before there exists any prices?
The issue with Graeber and others is they are looking for a historical account of barter pre-dating a historical record of debt, but they will never find it, because the record-keeping begin for the purpose of recording debt. Any barter would pre-date any record keeping, and would likely be very shortly-lived before people converge onto a common money. They have completely misinterpreted Menger's 'On the Origins of Money' to begin with, and are debunking a straw-man.
> "We have actual case studies of communities developing money prices from scratch: namely, prisoners who end up using cigarettes as the common medium of exchange. [...] The prisoners certainly weren't giving each other things from their Red Cross kits as gifts or as loans. No, they first were trading (in a state of direct exchange) and cigarettes quickly became the money in their community [...] The prices (quoted in cigarettes) of various items were posted on a board. If Graeber and his colleagues stumbled upon the ruins of this P.O.W. camp, they would presumably conclude that there was never a preexisting state of barter, because they only found boards listing prices quoted in terms of cigarettes." - https://mises.org/library/have-anthropologists-overturned-me...
Is this is the case, it seems to me that the issue is not with Graeber and others but, with the guys that claim something about which there is not historical account.
>>"We have actual case studies of communities developing money prices from scratch: "
The point is not if barter is used sometimes or if some people, in some circumstances, would start using cigarettes as money, but if that's the main history of money, specifically in the context of early states, as has been claimed for many years without any kind of evidence.
The burden of proof is not in the guys that examine the historic and archeology evidence, but in the ones that want to sell a narrative without evidence.
Both sides of the argument are making claims without evidence, because evidence prior to record-keeping of debt doesn't exist, and never will. There are only theories about how money came into being, and some are more plausible than others.
Graeber himself contradicts his own "debunking" of Menger's theory:
> "All evidence that exists points to money emerging as a series of fixed equivalents between silver – the stuff used to measure fixed equivalents in long distance trade, and conveniently stockpiled in the temples themselves where it was used to make images of gods, etc – and grain, the stuff used to pay the most important rations from temple stockpiles to its workers. Hence a silver shekel was fixed as the amount of silver equivalent to the numbers of bushels of barley that could provide 2 meals a day for a temple worker over the course of a month. It was the Temples that actually had a need to extend a silver system from a unit used to compare the value of a limited number of rare items traded long distance, used almost exclusively by members of the political or administrative elite of the societies in question – to something that could be used to compare the values of everyday items, like planks of wood, jugs of beer, and so forth."
Why silver?
Why were they already stockpiling silver?
How was it decided that silver would be used to measure fixed equivalents in long distance trade?
How was it decided the ratio of silver to bushels of barley?
What were these political and administrative elite doing when they proposed to offer a certain amount of silver for some long-distance traded rare items? (We have a word for this: 'barter')
Why would the foreigners they are trading with even want all this silver?
It takes some circular reasoning to get to where Graeber thinks he is, because he misinterpreted Menger to begin with. The above does not discredit Menger at all.
So, you have record-keeping that contradict the barter history and you have anthropology evidence that human semi-nomad tribes, even if they could barter sometimes, don't organize their society around barter, but, somehow, the more plausible evidence is barter. Don't know what to say to that.
He argues that where barter exists, people will quickly converge onto one or more forms of money for organizing trade. Even if it is not the intention of individual tradesmen, some astute traders will realize that they can profit by matchmaking (a necessity when there is a double-coincidence of wants). These astute traders will pick commodities which have the best saleability (those which are mostly likely to be accepted in exchange for other goods, and which retain value) as their means of measuring trade value. The successful traders will in turn, define which commodities emerges as the common monies in that economy, because traders who chose other (less saleable) commodities as their unit of measure will not be as successful.
It is not surprising that there are no historical documents outlining this, for it would likely pre-date even the written word by centuries or millennia. If it were the intention of a matchmaker to profit from establishing trades through use of goods with high saleability, they would also not likely advertise their tactics willingly, as they would be in competition with others attempting to make similar trades.
There are many historical accounts of monies being displaced when new, superior forms of money enter into economies, which is an extension of Menger's thesis (Also known as Thiers' Law). If a society is using a form of money which for whatever reason becomes much less saleable, and a new commodity enters the market which is more saleable, the more saleable commodity will eventually displace the old money.
So if it were the case that silver was selected (by who?) as the first money, 'for reasons', it seems like they hit jackpot on first try, for silver would remain the most saleable commodity for millennia until it would be later displaced by gold. Call me sceptic, but I don't buy such coincidences.
Huh? During the 17th and 18th century European colonization of North America there was no existing standard of payment which all settlers had access to. Before the circulation of paper money by colonial assemblies, tax and wages for public servants shifted to tobacco due to the liquidity of the export market.
> There are many historical accounts of monies being displaced when new, superior forms of money enter into economies, which is an extension of Menger's thesis (Also known as Thiers' Law). If a society is using a form of money which for whatever reason becomes much less saleable, and a new commodity enters the market which is more saleable, the more saleable commodity will eventually displace the old money
In the American colonies, commodity money based on farm products was replaced by paper credit money loaned by governors on security of property. Gold and silver were skipped over as official forms of money because they were not in large supply, and because activists such as Benjamin Franklin argued that if people invested time in digging for Spanish gold and buried treasure they would be poorer than if they spent time plowing fields.
> for silver would remain the most saleable commodity for millennia until it would be later displaced by gold
What's important is not simply salability but liquidity. In industrial countries the value of credit money is secured by the value of the assets of borrowers, they have to collect money back in same unit of account after investing or spending it to avoid default and foreclosure. In America the colonies tobacco-money or farm-product money was displaced by paper money with no metallic backing. Metal-backed money was imposed by Great Britain.
This is prominently discussed by Graeber in the book, so this comment leads me to believe you have even read it.
"Occasionally, we can even find some kind of currency beginning to develop: for instance, in POW camps and many prisons, inmates have indeed been known to use cigarettes as a kind of currency, much to the delight and excitement of professional economists. But were too we are talking about people who grew up using money and now have to make do without it - exactly the situation "imagined" by the economics textbooks."
However, when I later began studying Austrian economics, it became quite clear that Graeber's assumptions were based on circular reasoning, and that Graeber's writings on economics are through a left-leaning lens. That isn't to cast doubt on his work on Anthropology, which is fascinating to read, but I have doubts that he truly understood Menger's argument to begin with (or perhaps willingly chose to filter it to fit into his world-view.)
Being inside a deeply rooted paradigm, it is hard to imagine that the idea of "the worth" of a thing might not have been a paradigm that pre-historic people comprehended.
The thing that anthropologists like Graeber excel at is how they can take themselves out of their own conditioned thinking.
Think off this, when you see a n expensive car drive by you will most likely reflexively say "That car is probably worth $300,000". You assign an objective worth to the car, when classical economics will tell you that the actual worth of a car is subjective.
Personal ownership was not seen in the same way in the past as we see it today so objective worth might not have been in their mental framework.
Barter is just trading without the use of money. It isn't mutually exclusive with credit. What Graeber describes in his book is still barter. It's just a primitive credit system based promises of goods and services instead of promises of money.
This does not match with any definition that I've seen. Graeber debunks a parable used by Adam Smith and economists used to explain why money is more efficient than barter. The problem is that the central thesis of the parable still stands: trade is more efficient with through a medium of exchange.
> barter, for example, features immediate reciprocal exchange
Reciprocality requires figuring out how many chickens a Ford Taurus is, i.e. the exchange rate.
1) Have you ever met a good economist?
2) Is it possible you think he is a poor economist because he deeply understood it from the outside and you are still too "in it" to see? That is not a criticism, it is a question.
This isn't the contradiction you think it is.
The US has been in debt permanently since the civil war. When exactly did you think it was going to be paid off in its entirety? Why would it even make sense to do so while there is a permanent demand for high quality securities?
Did you think Graeber was saying that treasuries weren't the safest security for you or me? He didn't. This is a gross misinterpretation of the book.
> American imperial power is based on a debt that will never-can never-be repaid. Its national debt has become a promise, not just to its own people, but to the nations of the entire world, that everyone knows will not be kept.
Graber then likens the large holdings of US treasuries by Western Europe, Japan and Korea to a tribute system which siphons wealth from these supposed client states to the American Empire. And then in the very same chapter he also says China accumulating US treasuries is the first stage of a very long process of reducing the United States to something like a traditional Chinese client state.
No mention of the actual conventionally understood reason of why US treasuries are favored as reserves i.e. safety and liquidity.
Tell me again how I am misrepresenting the book.
Why do you think Russia dumped its treasuries in 2018 if they're such a safe investment for military opponents of US hegemony? How liquid would they be right now if they'd kept them? Which buyer of treasuries do you really think China shares most in common with? Is it State Farm or Calpers? Or is it Russia?
What you're doing right now is the economic equivalent of trying to apply Newton's second law to relativistic speeds. Yes, that's absolutely misrepresenting the book.
> Its national debt has become a promise, not just to its own people, but to the nations of the entire world, that everyone knows will not be kept.
The larger their holdings and the more the US is reliant upon their industrial output the larger the inflationary spike they can trigger just by flipping a switch.
Whether that spike is large enough to break confidence in the US dollar entirely and break its hegemony is another matter.
The longer China manages to maintain a trade surplus with a US and siphon US industry away the better their odds are though and the scarier them unloading is.
It's kind of like adage about how you owing the bank $1000 is 100% your problem and you owing the bank $10 mil is now the banks problem.
As interesting as this thesis may be, this is not even remotely close to what Graeber was alluding to:
> From a longer-term perspective, China's behavior isn't puzzling at all. In fact it's quite true to form. The unique thing about the Chinese empire is that it has, since the Han dynasty at least, adopted a peculiar sort of tribute system whereby, in exchange for recognition of the Chinese emperor as world-sovereign, they have been willing to shower their client states with gifts far greater than they receive in return. The echnique seems to have been developed almost as a kind of trick when dealing with the "northern barbarians" of the steppes, who always threatened Chinese frontiers : a way to overwhelm them with such luxuries that they would become complacent, effeminate, and unwarlike. It was systematized in the " tribute trade" practiced with client states like Japan, Taiwan, Korea, and various states of Southeast Asia, and for a brief period from 1405 to 1433, it even extended to a world scale, under the famous eunuch admiral Zheng He. He led a series of seven expeditions across the Indian Ocean, his great " treasure fleet"-in dramatic contrast to the Spanish treasure fleets of a century later-carrying not only thousands of armed marines, but endless quantities of silks, porcelain, and other Chinese luxuries to present to those local rulers willing to recognize the authority of the emperor.
At the same time they have been exporting cheap goods to the US which the US has become slowly accustomed to. Treasury purchase operations were an integral part of discounting these goods by artificially pushing down the value of the yuan. I suspect theyll try to keep this up more or less indefinitely until something snaps - they get slowly stronger and the US gets slowly weaker.
It has led to the US slowly deindustrializing and relying more and more upon artificially competitive Chinese imports.
The key feature of this strategy is the destruction of US industrial ecosystems through systematic, persistent undercutting. This is something the US tolerates because A) the frog is being boiled slowly B) US corporates have the same relationship with short term profits that an addict has with crack. In a way it's similar to the alliance the US made with the first batch of the post USSR oligarchs.
It takes 15-20 years give or take to build or destroy an industrial ecosystem while a currency can collapse in hours.
So yes, the strategy is very much like zheng he - service the US oligarchy's addiction to profit for a few decades before finally pulling out the rug and leaving the US to realize that it making an iPhone in the US will cost $3000 and you're actually all rather poor now.
I don't know what you think the tribute system was but it most definitely did not involve a rug pull.
Doesn't it kind of keep interest rates low and create needed liquidity in the US markets? I'm a layman but to me this reminds me of how i heard it explained that the status of the dollar as reserve currency and for oil transactions, etc subsidises subsidises the perpetual american trade deficit on the back of other nations. That person also referenced north african nations trying to protect their currency pegs even tho US fiscal policy was in part leading to issues for them leading up to the arab spring. I wonder how much truth there is to that.
We see a lot of Marx's basic ideals parroted by people without people realizing it. My favorite is Tucker Carlson listeners who spit on Marx. The idea of an elite with money/resource control controlling politics is literally straight out of Marx's writings and is a talking point Tucker Carlson likes to use.
Yes, Marx took the bad parts out of Smith and Ricardo and made a weird theory based on his reification of labor and value.
> We see a lot of Marx's basic ideals parroted by people without people realizing it. My favorite is Tucker Carlson listeners who spit on Marx. The idea of an elite with money/resource control controlling politics is literally straight out of Marx's writings and is a talking point Tucker Carlson likes to use.
Does Marx have a monopoly on this idea? It is a very trivial thing to believe, you don’t need Marx for that.
He was working with flawed economic concepts, like the labor theory of value. He tried and failed to relate "value" derived from labor to actual market prices. (We now know that the problem he set up was even logically not solvable.) The "economics" you find in Das Kapital is essentially a zeroth-order approximation to what would be considered economic reasoning today, a bit like Aristotle's physics compared to Einstein's GR. It is of some very niche interest for things like input/output analysis, which is important to computable simulations of the economy. But for anything else, it's just not useful.
If you ignore the social aspects of capitalism and economics completely, sure, Marx doesn't look like an Einstein. If you include those, that changes, doesn't it?
EDIT (a long one): Recently I read "Faster, Cheaper, Better - A history of Manufacturing (pretty sure that's the right title, it's in a shelf at home right now) about the history of manufacturing from the stone age to LEAN and beyond, written by a former Toyota LEAN guy and current Professor at Karlsruhe University. Great book, can only recommend it. It is showing well researched examples for each period, including my personal favorite the Venetian Arsenal. And I totally agree with the author that we, as man kind, came out better every time we improved manufacturing. In the long run, in the short run we paid incredible high prices in health, lives and social issues. These short term consequences are just glanced over in this book, hand waved like "yadayadayada, child labor and harsh working conditions bad,... things improved, society better now".
Marx lived during the industrial revolution, he saw those problems first hand. He saw that people with capital got rich, exploiting poor people and driving whole societies and professions into the ground. The Luddites are sold as backwards thinking folks today. Back then, when you just lost your own, small workshop that provided food for your family too a manufacture, when your own, and your kids prospects, changed from stable income to ruined health, 12 hour work days and being treated as cattle, they seem to be quite reasonable so.
That Marx was the only prominent (there were certainly more, Marx being the most famous) economist looking at those issues says more about economists and politicians of the day than it says about Marx.
That those social aspects of our technological improvements are glanced over also tells a lot about us. We are in the middle of a second industrial revolution, one that is aggravated by climate change. We will have a ton of those social issues down the road. And we are not thinking about those enough. That we basically have to fall back to Marx to get some potential answers speaks volumes about modern economics, social sciences and engineering.
Could you expand on that?
That may well be true. But I'm not convinced that modern economists are doing any better. For example, consider how much economic work is still based on the utterly flawed concept that humans are rational in a classical sense.
It is not. In its descriptive mode, economics captures animal spirits well. In its prescriptive mode, yes, this is assumed. But rationality is a simplifying assumption, with work then done to explain why the reality observed in the descriptive mode diverges from the predicted behaviour of rational actors. Put another way, the rationality assumption is part spherical cow, part “what would we do were we rational?”
Rejecting modern economics for the rationality assumption is rejecting modern physics for its use of frictionless environments.
But either way is fine, I am not self-censoring and don't really care for internet-points ^^
You're totally right, few people have read Marx but a lot of people have an opinion about him.
He wasn’t.
> And when he came up with "Das Kapital" it was one way of interpreting the nascent, unlimited capitalism of the industrial revolution.
Das Kapital was just a bad book in terms of economic theory regardless of its anthropological value.
> Because of that, Western society tends to discard Marx.
Economists tended to discard Marx long before Lenin.
> I think Marx is as relevant as he ever was
Hm. I am not sure I understand the connection.
He was.
>Das Kapital was just a bad book in terms of economic theory regardless of its anthropological value.
Das Kapital is a great book in both economic and anthropologic terms.
>Economists tended to discard Marx long before Lenin.
No they didn't.
>Hm. I am not sure I understand the connection.
You should try reading Das Kapital.
> You should try reading Das Kapital.
Well, maybe you should try re-reading it, because as far as I understand it, it doesn’t say anything close to that; though I am sure there is an interpretation that claims so as there are dozens of various contradictory Marx’s interpretations.
"No, you're wrong. That's not how it was."
Ironically, the first volume is the most popular and yet the worst of them all.
* https://www.goodreads.com/book/show/2714607-the-ascent-of-mo...
I found the historical context made it much easier to understand, and while I'm not a fan of Ferguson's politics - he is an excellent historian of finance.
If so, I'm gonna stay very far away from that book - there's enough authors out there that second chances in a case like this really are not required.
https://en.wikipedia.org/wiki/Niall_Ferguson
https://en.wikipedia.org/wiki/Neil_Ferguson_(epidemiologist)
Distrust any comment on the content that appears before the post is at least 3 hours old. Similarly how can we upvote it fast enough for the algorithm to not bury it before anyone has a chance to read it.
I admit I didn't read the appendix.
I have followed this writer for some time, always pretty good and VERY detailed.
If you don't know about bitcoin / historic currency, it's a great read. Covers the basis.
That's if you read out loud (23,000 @ 140wpm = 2:45 hours). If you silent read, you can get around 240wpm (1:36 hours).
That said there is plenty here that people can engage with in good faith without reading it all word for word.
I can't also tell if it's all somewhat promo for members area. As an economist, trying to understand the incentives.
FWIW I like the research.
What is money?
Well, the answer to that question ties into the difference between currency and money. Currency is some other entity’s liability, and they can choose whether or not to honor that particular liability. Money is something that is intrinsically valuable in its own right to other entities, and that has no counterparty risk if you custody it yourself (although it may have pricing risk related to supply and demand). In other words, Russia’s gold is money; their FX reserves are currency. The same is true for other countries.
The author is a woman.
Knew a lot of this already, picked up some new examples I hadn't heard of before. Feel like it's a good article for sharing with older-generation family etc.
people who've studied economics formally already have a good grasp of what money is; as they read through the first few paragraphs of this they can see by its meandering where it may be headed. I don't plan to finish it.
Eh, that's not really Gresham's law, which applies when there is a fixed (by law) exchange rate between two currencies.
Quoting Hayek’s Denationalization of Money, “What Jevons, as so many others, seems to have overlooked, or regarded as irrelevant, is that Gresham's law will apply only to different kinds of money between which a fixed rate of exchange is enforced by law.” (Emphasis his)
[0] https://en.wikipedia.org/wiki/Gresham%27s_law#Reverse_of_Gre...)
Gresham’s law applies when the seller is bound to a certain rate of exchange between the two currencies. The buyer will therefore pay in the currency she has the least desire to hold for the long term. As a result of everyone doing this, over time all trading will be done in the less-desirable currency.
In practice, you have to settle debts in the government dictated currency. Here Gresham takes hold, the valuable currency will disappear from circulation. Think silver dollars in the US with a higher material value then the nominal value. You still have to accept payment in any dollar so you wont spend silver dollars doing so. As long as you have the choice to sell it for material value. Think copper content in pennies for where this doesnt apply because its illegal to melt down.
Its all just a description of how the market (meaning people ) behaves once the government applies pressure in certain directions.
I was wondering about that just yesterday. "What are the value of those coins?" I thought. There seems to be a mint (episode 3), and the guy who runs the whole thing (the central bank) seems to live out in the desert.
Who sets the value? Can anything be money? (let's forget about the intrinsic value of the gold itself for a moment.).
It seems that these coins are used within the community of the criminals themselves and the bank sets their value. It also seems that the community can pay for things with fiat currency or these coins. And it seems that one can exchange these coins for fiat currency too.
The John Wick universe is an interesting example to see the practical use of another currency in everyday use embedded in a world of fiat currency.
But what really got me thinking (I know, late to the party)... money can be anything. Anything that a community decides what it is. As the community becomes larger it becomes more valuable, but also it comes with more problems too (the USD as example).
ie, if I turned up with cash to organise a hit... you might wonder who I was and if I was a cop. But if I instead rocked up with mafia gold, well then I've passed the sniff test for being part of the underworld.
Traditionally, something is considered money when it can fulfil three functions:
1) Act as a medium of trade
2) Act as a store of (economic) value
3) Act as a unit of account
The last is critically important in the modern context because one of the fundamental uses of money today is to measure economic wealth/income/activity/potential. Many commodities can act as #2. Many abstractions can act as #1. Few things act as all three.
> We can define currency as a liability of an institution, typically either a commercial bank or a central bank, that is used as a medium of exchange and unit of account.
> Central Asians at the time of Battuta, as a nomadic culture, used livestock as money. The unit of account was a sheep, and larger types of livestock would be worth a certain multiple of sheep.
> Prices of most things stay relatively stable or preferably keep going down as priced in the most salable good (such as gold, historically) over the long run, but go up in most years when measured in a depreciating and weaker unit of account such as the British pound.
Which is true.
But I like to think in boolean and float terms.
0 is not real.
1 is real.
Cash in a reserve currency is ~0.9
Visa/MasterCard are also ~0.9
BTC is probably around 0.7
A shit coin is <0.5
Which is to say, it isn't real. You're right - that's not a useful stance, and all of the unreal things aren't therefore equally "real"
Things in the "socially constructed reality" category depend on network effects--who believes and upholds the truths within your network. That might map to your "float" values, as not all currencies are upheld by unanimous agreement within various networks.
In all three kinds of things, belief that something is true -- even mass, near unanimous, collective belief that it is -- does not make it so. That was true for Newtonian physics and gravity as it is for, say, the idea that "interest rates and inflation are connected."
It's kinda the same thing with land. Homeowners vote in regressive zoning and lower property taxes and then point the blame at high profile companies like Blackrock taking advantage of the same laws to boost their property values. A house price 20% increase is the same for everyone but real estate companies benefit more because they have more houses.
The fundamental problem is that everyone wants to benefit at the expense of other people and they let the big guys get away with it because restricting their benefit would restrict your own benefit.
https://www.youtube.com/watch?v=RPrczfY6eTs
That is in interesting perspective. I always wondered how can BTC scale if the average folks cant use it to make instant payments.
The common understanding appears to be that money is just an imaginary human-thing and that often "we would be better off without it".
Consider the case of a crypto mine being established in a remote and isolated location in the desert (or on the moon) with plenty of sunshine and solar power. As long as the mine has an internet connection, it can use the available solar energy to mine crypto and send them to anyone on earth. This physically results in the mine being able to transmit energy wirelessly across vast distances.
Almost like magic.
Sure, it's not in an electrical form and there is energy loss, but at the end of the day, the result is a very real physical capacity to do work.
> This physically results in the mine being able to transmit energy wirelessly across vast distances.
...is complete bunk. No energy is transmitted when you mine and then transact in Bitcoin: you've used the energy to produce a proof of work, one that others arbitrarily value and exchange for different energy.
Restructured: it should be clear that no trust scheme can magically transfer energy; it can only transfer tokens than can be exchanged for energy. In other words, any trust scheme that has extraordinary power requirements is strictly worse than one that only consumes energy once (i.e., when ultimately purchased).
When the person wants to spend the crypto to get energy later, then new energy still has to be produced in addition to the energy used for mining (either by burning fossil fuels or using some of the capacity of renewables). If they're producing 100 units of energy to run their miner to get enough crypto to buy 100 units of energy later, then there's twice as much energy having to be produced than if they didn't run their miner.
Money is a tool for humans to allocate resources between themselves. It's not energy storage.
If there was only one person on Earth that could freely use any resources available to them, then they wouldn't ever have any use in "saving up energy" by crypto-mining to spend later because it's not saving up energy. It's making energy and spending it on IOU notes to trade to other people for energy they make. It's only when you add other people to the system that it makes any sense to do. Though ideally, the people would be able to coordinate together to come up with a solution that doesn't involve twice the energy being made with half of it going into making IOU notes.
You can't say that something that uses a huge amount of energy, and then lets you pay for even more energy to be used has "transferred" that energy, it's just unnecessarily consumed much more energy than was required...
I think it makes more sense to regard money as a kind of messaging technology that enables decentralised coordination and prioritisation of economic activities in the real economy. But you have to remember that the messaging technology of money is not itself the real economy. It is certainly not energy. Messaging and coordination systems cost energy to run. Adding a better messaging and coordination system might allow a society to run its real physical economy more efficiently, but the messaging and coordination system in itself does not produce energy.
Here's a dumb thought experiment:
Suppose there is a pre-industrial society on island A. The economy is based on agriculture and livestock. The citizens of island A society develop a system of currency using conch shells, which they can use to track debts accrued and favours owed. Adjacent to island A is the nearby uninhabited island wilderness of island B, filled with natural resources. Inconveniently, a very deep 20 metres wide chasm separates island A from island B. After years of effort with several fatalities and misadventures, the citizens of island A manage to traverse the gap and build a sturdy bridge allowing people, livestock and goods to cross. Some economic activity spreads to island B, but the terrain is not productive for livestock and livestock remain on island A.
You are one of the pioneers on the frontier of island B, attempting to establish a farm. You would like to rent some of the livestock belonging to your business partner on island A, to provide energy to clear land and establish your new field more easily.
Calamity strikes: there is an earthquake which causes bridge between island A and island B collapses! People, livestock and large trade goods can no longer cross the chasm until the bridge can be repaired. However, the gap is small enough to communicate across by shouting. If you really want, you could also bundle up a sack of conch shell money and sling it across the gap.
Rather inconveniently for the pioneers on island B, there were no livestock on island B at the moment the bridge collapsed.
Even without a bridge, to hire your business partner's livestock, you are still able to make a payment of money across the chasm to your business partner. You can choose to sling over a bundle of money across. Alternatively, the central bankers of island B and island A can shout across the 20 metre gap to negotiate the transaction and ensure the transaction is recorded consistently in each island's clay tablets in the traditional manner (Paxos).
However, there is no way for your business partner's livestock to get across the gap until the bridge is reconstructed. It may take years of very dangerous work to rebuild it.
The system of money and financial transactions still functions across the chasm, but it is completely unable to transfer livestock-powered energy.
The messaging & debt-tracking system (conch shells, clay tablets, shouted agreements) is not the same thing as the real economy (oxen energy to plough your fields).
Isn't this exactly how energy works? Aren't photons, electrons and other force carriers merely message passing?
This model makes the assumption that all players in the value chain (producers and consumers) are agents with repeatable instructions ie put,Get,push,add,mov,etc.
Since there is No SI unit for instructions I propose the Unit for measuring instructions be MOV operator , This is because of my belief taking inspiration from the X86 MOV operator which was proven to be turing complete with the movfuscator(https://github.com/xoreaxeaxeax/movfuscator). What this means IMO all computable operations can be broken down to move operations.
Lastly this system views markets as interaction between agents . And makes the assumption that agents that do not sustainably price their goods / services will fail to operate in the longrun. And views variance / volatility in prices as a outcome of chaotic interaction between agents rather True indicator of value.
[1] https://en.wikipedia.org/wiki/Praxeology
Paper money is clearly not the same thing as an electronic record in a bank account. Paper can't be stored in a database. They are kept equivalent because banks (and people) trade them at par, for example using ATM's.
Each bank (including central banks) has its own computer system for its accounts. Bank account money never leaves a bank's computers. There's no way to get it out of the computer, any more than you can remove your virtual treasure from an online role playing game.
So this seems like a good way of thinking about what happens when a bank creates money. They can create virtual currency in their own computer system, not in anyone else's. It doesn't make them richer, any more than a game company creating virtual gold pieces makes them richer. The money is either meaningless (if held by the bank itself) or a liability (if it belongs to a bank customer). To a bank, only outside money counts as wealth.
Transfers happen via trades. To pay anyone not using the same computer system, a bank needs outside money of some form.
So inside money and outside money are clearly different. To a customer, money in Bank A might seem equivalent to money in Bank B, but to Bank A, only dollars in Bank B are assets, and to Bank B, only dollars in Bank A are assets.
So, one way to approach the "what is money" question might be to look at payment systems. How is it that all these different sub-currencies are made to trade at par?
For example (bank money = real money) only because the bank is willing to keep the peg at (1.00 bank credit = 1.00 real currency) as you state whenever you use an ATM, take money out at the counter, etc. When the bank runs out of real money to maintain this peg it can and has deviated in the past (e.g. people selling their bank accounts at say 30c to the dollar in the great depression). In normal times however their much smaller money stock is enough to keep the peg going against the usual net deposit/withdrawal flow.
Of course if a central bank comes in and can lend that bank unlimited real money the peg could be maintained. Indeed that can and has happened.
https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-nega...
“Money is what you can give to someone else for a sandwich”
Tether is a completely unregulated de facto 'bank' that makes up a very significant portion of the demand for bitcoin. If that blows, bitcoin will inevitably go with it.
Buying bitcoin is betting not on bitcoin, but on tether.
This is a pretty good overview of all that's happened and why the parent's comment is actually relevant.
https://www.theverge.com/22620464/tether-backing-cryptocurre...
If Tether fails it would definitely hurt but it's not an existential threat to crypto.
The difference with Tether seems to be that they appear to be creating the deposits (tether) without any evidence of actually having or creating enough assets to cover it all (either having money in the bank, or writing decent quality loans to back it).
Banks no longer need reserves with the Fed but they are still subject to capital adequacy regulations.
Banks that don’t have assets to cover all their liabilities (deposits) are insolvent. Non-delinquent loans are assets to the bank (liabilities to the customers) that are created when banks lend and create money (which become deposits - which are liabilities to the bank and assets to customers).
Only the central bank can originate money without creating debt.
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
For Tether fear uncertainty and doubt, you kind of need to make a standard of where it stops being top of mind. Even Tether’s problems are only that its maybe 70% backed by fiat in a bank account, not like 10% or anything similar to the broader financial system.
> During World War II, when the Japanese Empire invaded regions throughout Asia, > they would confiscate hard currency from the locals and issue their own paper > currency in its place, which is referred to as “invasion money“. These > conquered peoples would be forced to save and use a currency that had no > backing and ultimately lost all of its value over time, and this was a way for > Japan to extract their savings while maintaining a temporary unit of account > in those regions.
The author also fails to cover fraud and wash trading. Besides Invasion Money, Crypto is the only other thing on the list where debts can disappear without any transfer of value.
I don’t think this is going to significantly change the way most people on hacker news think about bitcoin, but I will say that it changed my perspective on the problem of network scalability.
If you think of Bitcoin not as competing against Visa, but as competing against the bank settlement network, then it makes a lot more sense.
Yes, this is Bitcoin precisely. If you then lock your bitcoins in different schemes with different security models or transaction amortization tradeoffs, you carry the risk of the scheme, not the settlement layer and unit of account. You can experiment with different forms of commodity money, fiat money, and all the monetary policy therein and the proof will be in the pudding of who ends up with more of the underlying, finitely scarce coin, but you can never risk anyone's coin that doesn't join the scheme.
How can someone go through life and never ask themself what money is, where it comes from, why their paper bills keep getting worth less year over year... Most of us consume things on a daily basis, but never stop to think what actually happens there, where the value of the money comes from, what determines the price of the product, etc.