Thinking of it another way: money is a technology for distributing wealth. Without money we would need to rely on some centralized authority, a chief or pharoah, who would directly or through a bureaucracy distribute wealth. Money allows society to allocate resources with decentralized decisions.
Details of economic systems, tax codes, social services, labor laws, job markets, trade agreements, and financial institutions are what "distributes" wealth.
No, you're thinking of free markets. Free markets can work (inefficiently) by barter, which still distributes wealth without centralized authority. But barter is too inefficient (especially at scale).
You could say, then, that money is a technology for efficiently distributing wealth, without the need for some centralized authority (except perhaps for the issuer of the money).
No, I wasn't thinking of free markets. I was thinking of the bundled concepts of money, markets, capitalism, and the whole mess of technologies we use to allocate resources among the population.
It's more interesting to think about why we want a medium of exchange rather than how to contrast money, credit, and all the other vocabulary built into our current system.
To say that one technology is more efficient than another needs a definition of efficient. How do you want to measure efficiency?
Further, I did not argue that money (as a conflated bag of concepts representing our current system) is more efficient than a centralized authority. It appears so, given recent historical evidence, but that's still just a hypothesis.
No you couldn't, because it doesn't take any research at all to understand that:
1. Real currencies only exist by virtue of a central authority - a central bank.
2. The distribution of wealth is incredibly inefficient.
It's inefficient in the practical sense. It can take unfeasibly large amounts of time and effort to organise money transfers, certain transactions are either banned or deliberately made very difficult, and moving money always attracts a "tax" paid to the administrators of the transfer. Debt, which is a purely abstract social game, is even more toxic.
Wealth distribution is also incredibly inefficient politically, because most wealth is hoarded by individuals and organisations who did very little to create it. In a rational culture they would have no claim on it at all.
Meanwhile perfectly viable and useful business ideas are consistently starved of funding (i.e. approval by the financial priest castes.)
In fact money is just an irrational tribal status fetish. It makes as much sense as religion, and exists for much the same political reasons - as a useful backchannel by which mediocre and sometimes rather disturbed humans can make claims on resources and acquire political influence for personal gain.
I'd like to think of money as debt the society owes the individual holder for past benefits the individual holder bestowed on society. That debt can be exchanged for more goods and services from society in return at any time. The value of the debt may fluctuate (inflation/deflation) depending on how much benefits other individual holders in society is providing.
In the current US structure, money is not debt owed by society to individuals, but rather, it is money that is owed by individuals (or groups of individuals) to banks.
There is a very interesting book that explores one example of a possible other system -- centralised economic decision making -- called "Red Plenty" by Francis Spufford.
State-owned Soviet Economy! Central Planning! Cybernetics! Linear programming!
I'm not knowledgeable enough to dispute or agree with his broader assertions, but I found his anthropological arguments behind debt to be far more convincing than the "just so" stories of neo-liberal idealogy.
Definitely a good introduction to the subject matter.
I posted this because it is an interesting view, and it was written in 1913 and so a lot the ideas here got picked up and included in ideas of economics since then.
But I do have some major disagreements with the author:
"Credit and debt have nothing and never have had anything to do with gold and silver."
The history goes that originally humans used things like shells and beads to signal debts and obligations ( http://szabo.best.vwh.net/shell.html ). The idea is you need to have some collectible that is very hard to produce or fake, otherwise someone could forge it and fake that you owed them a debt. Overtime, it turns out gold and silver make the best tokens, because they are rare, easily molded into tokens of various size, and are very hard to fake. Then the government makes coins out of these gold and silver, and tries to make the coins the official tender, and sets the value of the coins at premium over the bullion included. Finally, the government tries to debase the coins gradually so it can make money from seinorage.
"Such legislation was, no doubt, due to the erroneous view that has grown up in modern days that a depositor has the right to have his deposit paid in gold or in “lawful money.” I am not aware of any law expressly giving him such a right, and under normal conditions, at any rate, he would not have it"
It would have been news to the depositors that they did not have the right to withdraw the money they put in. If they were not given this right, would they still lend? Part of the problem with banking historically is that there needs to be a clearer distinction between a deposit to a vault and investing in a bond mutual fund. Banks are sort of a hybrid of the two, and the contradiction makes the system break down.
"but there is overwhelming evidence that there never was, a monetary unit which depended on the value of coin or on a weight of metal; that there never was, until quite modern days, any fixed relationship between the monetary unit and any metal; that, in fact, there never was such a thing as a metallic standard of value."
If this was the case, then why didn't the Roman emperors make their coins out of iron? Sure, the face value always exceeded the metal value. But the metal was irrelevant. If the government pushes it too far, people stop accepting the coin, as the author notes in other parts of the essay.
"Money, then, is credit and nothing but credit."
There is a sense in which this is true. It is like one of those optical illusions, where the image flips depending on how you look at it.
But, from the point of view of a clean definition of terms, it only makes sense to call something a "credit" if you are promised something specific in return. If a token has no specific promise, then it is a collectible, not a credit.
Usually the by the time the government tries to debase the coins gradually so it can make money from seigniorage., it is in a lot of financial trouble, and I think it's the financial trouble that causes the collapse of the currency, rather than the debasement. If a government made money from seigniorage, but only to the extent of replacing broken coins, and the nation is in good economic health overall, there will be no currency troubles.
Is it true that governments started to make money to be money? I thought banks started doing that first.
In my eyes it doesn't make sense for governments to start doing that. Classical governments didn't achieve things because they had money, but because they had power and people believed in that power. A painter would come and change the kings walls colour not because he gets paid well, but because he loses his head if he doesn't.
Banks (or banking families might be better) on the other hand trade debt. As anybody who gets value from trade they want to decrease the burden of trading debt, so instead of some infeasible hard, heavy stuff like gold barrels they invent coins, and because that's also quite heavy and hard to track they invent paper money. Paper is fairly easy to transport, exchange, so banks are happy. Then the governments come and try to control money, because their job/desire is to control what people are doing.
> Is it true that governments started to make money to be money? I thought banks started doing that first.
IIRC it was governments, for taxation. They have more motive than a banker does. A banker is a professional trader, in the business of buying and selling things at appropriate prices - that's where they make their profit, so having their clients pay them in non-money is an advantage. By contrast for a government that's collecting 5% of people's income, having that in a wide variety of trade goods is an inconvenience.
It may “make sense”, but it’s also an ahistorical just-so story.
If you want a more accurate description, I recommend the first half of David Graeber’s book Debt: The First 5000 Years, also mentioned by another top-level comment.
It's a great read that actually gets you to understand how money came to be, in a theoretical sense. The book the other poster suggests is more about the history of money and monetary phenomena.
The part on being enforced by a central government, yes.
But my last line still applies to all money.
That's why when someone mentions the phrase "intrinsic value", they are not seeing the core truth of money.
It's interesting that money is misunderstood by so many people while representing the fundamental fabric of human society.
There is no intrinsic value to anything in this universe, not one that applies to every single organism.
For humans and most life forms, the closest thing that I can think of is food/water/(oxygen for aerobic organism), force of violence, pleasure and time.
Today, most money aren't even in physical circulation. Most of the gold in the world sits in some cold dark vault.
It's literally a video game and the funny thing is, we have enough food and water for everyone in the world already.
Current fiat monetary systems are not based on 'what the world ow[e]s you'. Money is only a token of a debt an individual or group of individuals has with a legally sanctioned and central bank blessed commercial bank.
At it's core money is merely a concept used to determine deservingness though. It lets us answer the question "does this person deserve X," where X can be providing them services/goods (or not.)
At the moment money is a rather contorted and easily manipulable proxy for deservingness though which is the cause of a lot, if not the majority, of the world's troubles.
There's no technical reason though why we couldn't for example determine deservingness through interpersonal distribution of value; like PageRank but for people.
I don't fear it; I'm amused by people who tell me that fiat currency is going to collapse any day now unlike super-safe gold, but that they will nonetheless be happy to exchange some of their super-safe gold for my soon-to-be-worthless fiat currency. Out of the goodness of their hearts or something.
The dollar has lost roughly 97% of its value (per the Fed's own assessment) since the Federal Reserve was created. And that's a good outcome, we could talk about the ruble, or the real, or the bolivar.
Gold has not lost any value in the last century by comparison.
Gold has plenty of issues, confidence as a store of value is not one of them. By comparison, the global economy is filled constantly with stories, from one country or another, of fiat being demolished through constant inflation / aggressive devaluation.
Countries can drown their citizens via all sorts of schemes involving debt (ala Japan and the Yen), that then become currency devaluation schemes (QE) to debase that debt and chop down the standard of living of its citizens as a stealth move to pay for that debt. Such a thing inherently can't happen with gold.
The Euro zone for example is in the middle of seeing its citizens standards of living chopped down via QE, to debase the vast debt that has been choking off the growth potential of much of Europe since 2007 (the European economy has seen zero net GDP growth since roughly 2007). How many Euro zone citizens understand what the ECB is doing to them exactly? Do they realize that what they're about to suffer, is what Americans went through from 2002 to 2014 as the Fed debased the dollar to try to avoid multiple recessions, leading to a substantial decline in the US standard of living?
If the ECB drops the value of the Euro by 1/3 via QE, that substantially reduces in real terms the standard of living of anyone living on that currency. Gold shields against that abuse.
You can't eat gold. I'd be more interested to see their value measured in loaves of bread, apartments, or hours of human labour - the kind of thing I'm actually going to want to buy with my store of value.
I see where you are coming from, but as these numbers are inflation adjusted the USD isn't really the frame of reference, the purchasing power is - as a result of adjusting for inflation the purchasing power represented by one USD stays constant, so USD can be cancelled out on both sides of the equation.
Trouble is, that for all your dire warnings about the horrible things the ECB might do, the one store of value that actually has dropped in value by a third in recent years is gold (it lost nearly a third between mid 2012 and mid 2013, and its a little lower than that now)
Sure, in the long run, gold holds its value, though it doesn't perform nearly as well as stock markets, or real estate. In the long run, a predictable 2% annual inflation erodes the value of savings, which is why people participating in the dollar economy tend to put their money in bank accounts paying interest rather than burying their cash in vaults,
But it's economically illiterate to pretend that gold price crashes haven't been a far more serious wealth destroyer over the last couple of years than the relatively stable and predictable inflation in developed countries, despite all the predictions that QE was going to make the sky fall in.
The 97% loss in value of the dollar is brought up again and again as if it's some shocking fact. But that drop happened over a century, and fiat money is not expected to be s long term store of value. So really, that "shocking"drop is a non-issue unless your retirement savings account was a bed mattress.
There's nothing in the phrase "Money is a piece of token that represents favor or debt the world owns to you" which specifies either fiat or specie currency.
There have absolutely been government-issued specie currencies through history. Virtually all have also seen tremendous devaluation. Look up the 94% devaluation (and corresponding inflation) of the silver Roman denarius.
It's not favors that money represents, but rather a convenient frozen form of productive labor and goods. It represents time.
The world does not owe you a debt or favor just because you possess that money. I don't owe you a debt, such that I have to give you anything for that money if I choose not to; and nobody else does either. Viewing money as a debt owed, is a very incorrect way to look at it.
To prove the point, try walking up to someone and telling them that you have a piece of government paper in your pocket that represents a claim on their shoes, and since they owe you a debt you demand they give you their shoes (or really anything else for that matter) right now. See what happens.
Your shoes-favor example is a fair critique of one interpretation of the parent comment:
> Money is a piece of token that represents favor or debt the world owns to you, or at least, anyone who takes money as payment
I think perhaps that line might be better stated as something like:
"Money is a piece of token that represents favor or debt the <backer-of-money> owes you."
E.g. <backer-of-money> might be a bank or government. E.g. fiat currency.
If someone accepts my money in payment, that is not because money is some "debt-upon-the-world" that I can transfer to an arbitrary person, and force them to repay, rather, they perceive that a token of the <backer-of-money>'s debt has value, and they are willing to exchange some good or service so that the <backer-of-money> is now in their debt.
Perhaps a more general way of looking at it is that money is a token that one believes has value because one believes that others believe the token has value, and are willing to accept it in exchange for other things of value (which may or may not be other forms of money, or goods/services with "actual" value).
Yet another way of looking at it is that money is part of a system that influences a group of individuals in society to behave in a certain way. From this perspective you could ask things like:
1. are the collective actions of society a desirable outcome?
2. is this an efficient way to achieve the current outcome?
3. what other kinds of systems might produce different outcomes?
4. pragmatically, what other kinds of systems are reachable given that we're operating within the context of the current system?
That's one way to view it. The truth about anything real in this world is that it is too complex to have only one valid explanation. Don't fall into the trap to only believe one. Look at the other ones and find that there is more to it than any single explanation can provide.
Money is a reasonable way to track favours, but it's also a reasonable standard exchange medium, it's also a reasonable representation of value, etc. But for all explanations you can also find reasons why it's not, e.g., it's not a favour because a favour is a one-to-one relationship, while money you can get from one person and use it to get something from another person. (No need to counter argue here, you don't need to convince me. I just wanted to present an example of why the idea of "money=favour" is not perfect as well.)
I'm not sure if I get that <government> part. Is that only for the example? If I convince you that I have a cool t-shirt for you, then I give you the t-shirt and you give me the money, not the government, and if I get the money depends mostly on your decision if the t-shirt has value to you or not. There might be cases where I could convince the government that you should give me money, but in the case of the t-shirt that's unlikely.
Using that example can you understand the confusion and explain more in detail? Thanks.
The decision depends upon what value I think the t-shirt has, what value I think the money token has, what value you think the t-shirt has, and what value you think the money token has.
I guess I am thinking of money as being a token of favour against a third party (<government>) not involved in the transaction, and moreover being a token for a favour that will never be invoked.
edit: From this perspective it seems reasonable to ask "what difference does it make what the third-party is?" and "if the favour is never to be invoked, why think of it as a favour at all?".
edit 2: the "favour" and the "value" here are quite different ideas, if that part is confusing.
This article says what money WAS. What it actually is now is a form of credit statement. The more "money" you have, the more debt you created in the society. It is interesting how value is separated from money now. Equity is more "money" than you think. And @msellout is right - "Money" is technology.
I haven't seen anyone mention an ecological perspective, so here's "The Trophic Theory of Money":
> The theory, in a nutshell, is that the volume of real money (adjusted for inflation) in an economy is a pretty good indicator of the ecological impact of that economy.
> In ecology, or the economy of nature, “trophic” refers to the flow of energy and nutrients. The lowest trophic level is the producers, or plants that produce their own food in the process of photosynthesis. Herbivorous animals eat plants, and carnivorous animals eat herbivores. That’s the economy of nature in a nutshell.
> In the human economy, the producers are farmers. Only with an agricultural surplus can there be a division of labor into manufacturing and service sectors.
> All of these real goods and services occupy some portion of the economic trophic structure. Because this trophic structure as a whole can only increase with increasing agricultural and extractive surplus, an expanding real money supply represents an increasing environmental impact.
This clearly is not the only perspective of what money "is", or even a mainstream one. But it seems like a reasonable stab at a functional description of what money "means" in an environmental sense.
I don't think that's an accurate viewpoint any more. Farming is already on the order of 1% of the workforce for developed nations. Making that 0.1% won't make a big difference. Extraction of raw materials in general, maybe, but a bigger factor than how much materials are extracted is how those materials are used. Look at how Silicon atoms can be used: as sand, as glass, or as computer chips. The economy can grow without extracting additional raw materials by using those materials in different ways.
Farming remains a large share of the workforce, to 90% and more, for less-developed nations. In the time of Smith and Ricardo, farms and the land were the source of all wealth. Ricardo lamented over the inequitable distribution of good farmland...
And developed nations are dependent upon petroleum and other fossil fuels. Effectively farming ancient plant growth by way of buried reserves.
My read though of the Trophic Theory is that it's less one of money than of wealth creation (that is, economic productivity), assuming a sustainable economic system.
Though I may have to give it a longer look.
Eric Zencey, one of the contributors to the Daly News piece cited is also the author of the Soddy critique I just referenced in another comment.
Only partially related, but still: some friends are working on a game in which you play as a "banker" from middle ages until modern times. It is mainly a city "sim" game but that should also make you think about what is money and what it represents. They would love any feedback: http://moneymakerdeluxe.com/
There's the standard four-point definition used in economics:
1. A medium of exchange.
2. A unit of account.
3. A store of value.
4. Sometimes: a standard of deferred payment.
Note that these four functions are given more-or-less in order of significance, and that the great obsession of goldbugs and anti-inflationists , a (stable) store of value, is third on the list and is exceeded by the role as a medium of exchange. Fail in the first role and all commerce stops.
I was surprised that with the emphasis on debt and credit in the article, David Graeber's Debt: The first 5,000 years wasn't mentioned. Well worth reading.
I've found the concepts of modern monetary theory (MMT) to be quite interesting and that they tend to correspond to many of my own views. In particular that money itself can simply be created (or destroyed), that it enters circulation by way of government spending (or central-bank purchases of assets), and that payments which are mandated in a given currency, particularly taxes, but also interest and other debt obligations or mandated currencies (e.g., the U.S. dollar's role as a reserve currency and in global petroleum trade) create a value basis for the currency. That is: people and organizations must pay taxes and buy petroleum, so they must have dollars, so that dollars have value. A point the bitcoinistas seem to have failed to grasp....
There's some history to the idea that money should be considered to be backed in energy. I'd first encountered it in Arthur C. Clarke's novel Imperial Earth, in which "Sols" were backed in kilowatt-hours. Kim Stanley Robinson uses the idea in his Re-Green-Blue Mars series, and Buckminster Fuller discussed the concept. The earliest reference of which I'm aware is H.G. Wells 1914 story The World Set Free,
As Wells wrote:
The world had already been put upon one universal monetary basis. For some months after the accession of the council, the world's affairs had been carried on without any sound currency at all. Over great regions money was still in use, but with the most extravagant variations in price and the most disconcerting fluctuations of public confidence. The ancient rarity of gold upon which the entire system rested was gone. Gold was now a waste product in the release of atomic energy, and it was plain that no metal could be the basis of the monetary system again. Henceforth all coins must be token coins. Yet the whole world was accustomed to metallic money, and a vast proportion of existing human relationships had grown up upon a cash basis, and were almost inconceivable without that convenient liquidating factor. It seemed absolutely necessary to the life of the social organisation to have some sort of currency, and the council had therefore to discover some real value upon which to rest it. Various such apparently stable values as land and hours of work were considered. Ultimately the government, which was now in possession of most of the supplies of energy-releasing material, fixed a certain number of units of energy as the value of a gold sovereign, declared a sovereign to be worth exactly twenty marks, twenty-five francs, five dollars, and so forth, with the other current units of the world, and undertook, under various qualifications and conditions, to deliver energy upon demand as payment for every sovereign presented.
Wells dedicates his book to Frederick Soddy, principally known as a chemist (he won a Nobel prize), but also the author of The Rôle of Money, avaible at Archive.org:
I was skimming through the piece and wasn't quite sure to what extent it was all written in 1913 or comprised both an earlier work and contemporary commentary on it. Most of the language is quite modern.
Adam Smith might be wrong about the detailed history or might be oversimplifying the history. But I don't think he could be very wrong about how people thought about money in his time. One point of the article is that the exact amount of base metal was never really the point and the value of the coins was regulated by supply and demand for coins somewhat independently of the precious metal content. Which seems fair, but then one has to ask why make the coins out of gold etc. in the first place, and why make a big deal about how much is in there?
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[ 135 ms ] story [ 3025 ms ] threadDetails of economic systems, tax codes, social services, labor laws, job markets, trade agreements, and financial institutions are what "distributes" wealth.
You could say, then, that money is a technology for efficiently distributing wealth, without the need for some centralized authority (except perhaps for the issuer of the money).
It's more interesting to think about why we want a medium of exchange rather than how to contrast money, credit, and all the other vocabulary built into our current system.
To say that one technology is more efficient than another needs a definition of efficient. How do you want to measure efficiency?
Further, I did not argue that money (as a conflated bag of concepts representing our current system) is more efficient than a centralized authority. It appears so, given recent historical evidence, but that's still just a hypothesis.
1. Real currencies only exist by virtue of a central authority - a central bank.
2. The distribution of wealth is incredibly inefficient.
It's inefficient in the practical sense. It can take unfeasibly large amounts of time and effort to organise money transfers, certain transactions are either banned or deliberately made very difficult, and moving money always attracts a "tax" paid to the administrators of the transfer. Debt, which is a purely abstract social game, is even more toxic.
Wealth distribution is also incredibly inefficient politically, because most wealth is hoarded by individuals and organisations who did very little to create it. In a rational culture they would have no claim on it at all.
Meanwhile perfectly viable and useful business ideas are consistently starved of funding (i.e. approval by the financial priest castes.)
In fact money is just an irrational tribal status fetish. It makes as much sense as religion, and exists for much the same political reasons - as a useful backchannel by which mediocre and sometimes rather disturbed humans can make claims on resources and acquire political influence for personal gain.
EDIT: In practicality, not legally.
State-owned Soviet Economy! Central Planning! Cybernetics! Linear programming!
Definitely a good introduction to the subject matter.
Or perhaps - I read this book and ended up far less ignorant of my confusion as to what money was.
This is a great book.
But I do have some major disagreements with the author:
"Credit and debt have nothing and never have had anything to do with gold and silver."
The history goes that originally humans used things like shells and beads to signal debts and obligations ( http://szabo.best.vwh.net/shell.html ). The idea is you need to have some collectible that is very hard to produce or fake, otherwise someone could forge it and fake that you owed them a debt. Overtime, it turns out gold and silver make the best tokens, because they are rare, easily molded into tokens of various size, and are very hard to fake. Then the government makes coins out of these gold and silver, and tries to make the coins the official tender, and sets the value of the coins at premium over the bullion included. Finally, the government tries to debase the coins gradually so it can make money from seinorage.
"Such legislation was, no doubt, due to the erroneous view that has grown up in modern days that a depositor has the right to have his deposit paid in gold or in “lawful money.” I am not aware of any law expressly giving him such a right, and under normal conditions, at any rate, he would not have it"
It would have been news to the depositors that they did not have the right to withdraw the money they put in. If they were not given this right, would they still lend? Part of the problem with banking historically is that there needs to be a clearer distinction between a deposit to a vault and investing in a bond mutual fund. Banks are sort of a hybrid of the two, and the contradiction makes the system break down.
"but there is overwhelming evidence that there never was, a monetary unit which depended on the value of coin or on a weight of metal; that there never was, until quite modern days, any fixed relationship between the monetary unit and any metal; that, in fact, there never was such a thing as a metallic standard of value."
If this was the case, then why didn't the Roman emperors make their coins out of iron? Sure, the face value always exceeded the metal value. But the metal was irrelevant. If the government pushes it too far, people stop accepting the coin, as the author notes in other parts of the essay.
"Money, then, is credit and nothing but credit."
There is a sense in which this is true. It is like one of those optical illusions, where the image flips depending on how you look at it.
But, from the point of view of a clean definition of terms, it only makes sense to call something a "credit" if you are promised something specific in return. If a token has no specific promise, then it is a collectible, not a credit.
In my eyes it doesn't make sense for governments to start doing that. Classical governments didn't achieve things because they had money, but because they had power and people believed in that power. A painter would come and change the kings walls colour not because he gets paid well, but because he loses his head if he doesn't.
Banks (or banking families might be better) on the other hand trade debt. As anybody who gets value from trade they want to decrease the burden of trading debt, so instead of some infeasible hard, heavy stuff like gold barrels they invent coins, and because that's also quite heavy and hard to track they invent paper money. Paper is fairly easy to transport, exchange, so banks are happy. Then the governments come and try to control money, because their job/desire is to control what people are doing.
IIRC it was governments, for taxation. They have more motive than a banker does. A banker is a professional trader, in the business of buying and selling things at appropriate prices - that's where they make their profit, so having their clients pay them in non-money is an advantage. By contrast for a government that's collecting 5% of people's income, having that in a wide variety of trade goods is an inconvenience.
Is there a difference?
If you want a more accurate description, I recommend the first half of David Graeber’s book Debt: The First 5000 Years, also mentioned by another top-level comment.
Note, however, that Menger is not a columnist or blogger: http://en.wikipedia.org/wiki/Carl_Menger http://www.britannica.com/EBchecked/topic/374958/Carl-Menger
This whole premise is enforced by central governments in modern times.
When we buy or sell goods, give away our time and labor for a salary, we're simply exchanging favors.
That's all money is, a system for keeping track of "favors" owed to any individual.
But my last line still applies to all money.
That's why when someone mentions the phrase "intrinsic value", they are not seeing the core truth of money.
It's interesting that money is misunderstood by so many people while representing the fundamental fabric of human society.
There is no intrinsic value to anything in this universe, not one that applies to every single organism.
For humans and most life forms, the closest thing that I can think of is food/water/(oxygen for aerobic organism), force of violence, pleasure and time.
Today, most money aren't even in physical circulation. Most of the gold in the world sits in some cold dark vault.
It's literally a video game and the funny thing is, we have enough food and water for everyone in the world already.
At the moment money is a rather contorted and easily manipulable proxy for deservingness though which is the cause of a lot, if not the majority, of the world's troubles.
There's no technical reason though why we couldn't for example determine deservingness through interpersonal distribution of value; like PageRank but for people.
'Gold as money' is still very much in circulation. Even as it sits in CB vaults.
Gold has not lost any value in the last century by comparison.
Gold has plenty of issues, confidence as a store of value is not one of them. By comparison, the global economy is filled constantly with stories, from one country or another, of fiat being demolished through constant inflation / aggressive devaluation.
Countries can drown their citizens via all sorts of schemes involving debt (ala Japan and the Yen), that then become currency devaluation schemes (QE) to debase that debt and chop down the standard of living of its citizens as a stealth move to pay for that debt. Such a thing inherently can't happen with gold.
The Euro zone for example is in the middle of seeing its citizens standards of living chopped down via QE, to debase the vast debt that has been choking off the growth potential of much of Europe since 2007 (the European economy has seen zero net GDP growth since roughly 2007). How many Euro zone citizens understand what the ECB is doing to them exactly? Do they realize that what they're about to suffer, is what Americans went through from 2002 to 2014 as the Fed debased the dollar to try to avoid multiple recessions, leading to a substantial decline in the US standard of living?
If the ECB drops the value of the Euro by 1/3 via QE, that substantially reduces in real terms the standard of living of anyone living on that currency. Gold shields against that abuse.
Not in that artificial timeframe, but surly in many other periods:
* it lost over 65% of its value between 1933 and 1970.
* it lost over 82% of its value between 1980 and 2000.
* it lost about 29% of its value the last two years.
(http://www.macrotrends.net/1333/historical-gold-prices-100-y...)
Gold is a highly speculative asset.
Alternatively, you could invert the graph to say that USD is a highly speculative asset - relative to gold :)
Sure, in the long run, gold holds its value, though it doesn't perform nearly as well as stock markets, or real estate. In the long run, a predictable 2% annual inflation erodes the value of savings, which is why people participating in the dollar economy tend to put their money in bank accounts paying interest rather than burying their cash in vaults,
But it's economically illiterate to pretend that gold price crashes haven't been a far more serious wealth destroyer over the last couple of years than the relatively stable and predictable inflation in developed countries, despite all the predictions that QE was going to make the sky fall in.
It is not like fiat currencies in the sense of 'faith' that the scarcity will continue however.
Right now we have some incentives that work to keep fiat currencies scarce, but those forces are not the same as what keeps gold scarce.
There's nothing in the phrase "Money is a piece of token that represents favor or debt the world owns to you" which specifies either fiat or specie currency.
There have absolutely been government-issued specie currencies through history. Virtually all have also seen tremendous devaluation. Look up the 94% devaluation (and corresponding inflation) of the silver Roman denarius.
The world does not owe you a debt or favor just because you possess that money. I don't owe you a debt, such that I have to give you anything for that money if I choose not to; and nobody else does either. Viewing money as a debt owed, is a very incorrect way to look at it.
To prove the point, try walking up to someone and telling them that you have a piece of government paper in your pocket that represents a claim on their shoes, and since they owe you a debt you demand they give you their shoes (or really anything else for that matter) right now. See what happens.
> Money is a piece of token that represents favor or debt the world owns to you, or at least, anyone who takes money as payment
I think perhaps that line might be better stated as something like:
"Money is a piece of token that represents favor or debt the <backer-of-money> owes you."
E.g. <backer-of-money> might be a bank or government. E.g. fiat currency.
If someone accepts my money in payment, that is not because money is some "debt-upon-the-world" that I can transfer to an arbitrary person, and force them to repay, rather, they perceive that a token of the <backer-of-money>'s debt has value, and they are willing to exchange some good or service so that the <backer-of-money> is now in their debt.
Perhaps a more general way of looking at it is that money is a token that one believes has value because one believes that others believe the token has value, and are willing to accept it in exchange for other things of value (which may or may not be other forms of money, or goods/services with "actual" value).
Yet another way of looking at it is that money is part of a system that influences a group of individuals in society to behave in a certain way. From this perspective you could ask things like:
1. are the collective actions of society a desirable outcome? 2. is this an efficient way to achieve the current outcome? 3. what other kinds of systems might produce different outcomes? 4. pragmatically, what other kinds of systems are reachable given that we're operating within the context of the current system?
Money is a reasonable way to track favours, but it's also a reasonable standard exchange medium, it's also a reasonable representation of value, etc. But for all explanations you can also find reasons why it's not, e.g., it's not a favour because a favour is a one-to-one relationship, while money you can get from one person and use it to get something from another person. (No need to counter argue here, you don't need to convince me. I just wanted to present an example of why the idea of "money=favour" is not perfect as well.)
E.g. money is token of favour FROM <government> TO <current-bearer-of-token>.
Your general point about looking at things in more than one way is sound.
Using that example can you understand the confusion and explain more in detail? Thanks.
I guess I am thinking of money as being a token of favour against a third party (<government>) not involved in the transaction, and moreover being a token for a favour that will never be invoked.
edit: From this perspective it seems reasonable to ask "what difference does it make what the third-party is?" and "if the favour is never to be invoked, why think of it as a favour at all?".
edit 2: the "favour" and the "value" here are quite different ideas, if that part is confusing.
Also, this 2 hour long video with Mosler and Stephanie Kelton: https://www.youtube.com/watch?v=ba8XdDqZ-Jg
Randall Wray, Bill Mitchell and Pavlina Tcherneva are a few other economists trying to get the word out.
For the "fiscal conservatives": http://itsthepeoplesmoney.blogspot.com/2014/11/confessions-o...
> The theory, in a nutshell, is that the volume of real money (adjusted for inflation) in an economy is a pretty good indicator of the ecological impact of that economy.
> In ecology, or the economy of nature, “trophic” refers to the flow of energy and nutrients. The lowest trophic level is the producers, or plants that produce their own food in the process of photosynthesis. Herbivorous animals eat plants, and carnivorous animals eat herbivores. That’s the economy of nature in a nutshell.
> In the human economy, the producers are farmers. Only with an agricultural surplus can there be a division of labor into manufacturing and service sectors.
> All of these real goods and services occupy some portion of the economic trophic structure. Because this trophic structure as a whole can only increase with increasing agricultural and extractive surplus, an expanding real money supply represents an increasing environmental impact.
http://steadystate.org/the-trophic-theory-of-money/
This clearly is not the only perspective of what money "is", or even a mainstream one. But it seems like a reasonable stab at a functional description of what money "means" in an environmental sense.
And developed nations are dependent upon petroleum and other fossil fuels. Effectively farming ancient plant growth by way of buried reserves.
My read though of the Trophic Theory is that it's less one of money than of wealth creation (that is, economic productivity), assuming a sustainable economic system.
Though I may have to give it a longer look.
Eric Zencey, one of the contributors to the Daly News piece cited is also the author of the Soddy critique I just referenced in another comment.
There's the standard four-point definition used in economics:
1. A medium of exchange.
2. A unit of account.
3. A store of value.
4. Sometimes: a standard of deferred payment.
Note that these four functions are given more-or-less in order of significance, and that the great obsession of goldbugs and anti-inflationists , a (stable) store of value, is third on the list and is exceeded by the role as a medium of exchange. Fail in the first role and all commerce stops.
I was surprised that with the emphasis on debt and credit in the article, David Graeber's Debt: The first 5,000 years wasn't mentioned. Well worth reading.
I've found the concepts of modern monetary theory (MMT) to be quite interesting and that they tend to correspond to many of my own views. In particular that money itself can simply be created (or destroyed), that it enters circulation by way of government spending (or central-bank purchases of assets), and that payments which are mandated in a given currency, particularly taxes, but also interest and other debt obligations or mandated currencies (e.g., the U.S. dollar's role as a reserve currency and in global petroleum trade) create a value basis for the currency. That is: people and organizations must pay taxes and buy petroleum, so they must have dollars, so that dollars have value. A point the bitcoinistas seem to have failed to grasp....
http://en.wikipedia.org/wiki/Modern_Monetary_Theory
There's some history to the idea that money should be considered to be backed in energy. I'd first encountered it in Arthur C. Clarke's novel Imperial Earth, in which "Sols" were backed in kilowatt-hours. Kim Stanley Robinson uses the idea in his Re-Green-Blue Mars series, and Buckminster Fuller discussed the concept. The earliest reference of which I'm aware is H.G. Wells 1914 story The World Set Free,
As Wells wrote:
The world had already been put upon one universal monetary basis. For some months after the accession of the council, the world's affairs had been carried on without any sound currency at all. Over great regions money was still in use, but with the most extravagant variations in price and the most disconcerting fluctuations of public confidence. The ancient rarity of gold upon which the entire system rested was gone. Gold was now a waste product in the release of atomic energy, and it was plain that no metal could be the basis of the monetary system again. Henceforth all coins must be token coins. Yet the whole world was accustomed to metallic money, and a vast proportion of existing human relationships had grown up upon a cash basis, and were almost inconceivable without that convenient liquidating factor. It seemed absolutely necessary to the life of the social organisation to have some sort of currency, and the council had therefore to discover some real value upon which to rest it. Various such apparently stable values as land and hours of work were considered. Ultimately the government, which was now in possession of most of the supplies of energy-releasing material, fixed a certain number of units of energy as the value of a gold sovereign, declared a sovereign to be worth exactly twenty marks, twenty-five francs, five dollars, and so forth, with the other current units of the world, and undertook, under various qualifications and conditions, to deliver energy upon demand as payment for every sovereign presented.
http://www.gutenberg.org/files/1059/1059-h/1059-h.htm
Wells dedicates his book to Frederick Soddy, principally known as a chemist (he won a Nobel prize), but also the author of The Rôle of Money, avaible at Archive.org:
This is minor, but the article probably didn't mention that book because it wasn't published until about 98 years later.
Thanks for the book recommendation, though. It sounds interesting, as do the ideas about energy backing and "demand rights".
I was skimming through the piece and wasn't quite sure to what extent it was all written in 1913 or comprised both an earlier work and contemporary commentary on it. Most of the language is quite modern.
But yes, you're painfully correct, my error.