Bitcoin Forum

I have $10 worth of lunch, I eat it, it's gone

I have $10 in cash, I spend it to buy a lunch and eat it, it's gone too. But, that $10 note now becomes the income of the restaurant, they will spend it later, which will cause another $10 income for another guy, and so on...

In the first case, I ate a lunch, did not create any other economy activity

In the second case, I still ate a lunch, but I created a serial of economy activities

Why such a big difference just because the existing of currency? Is there something fundamentally different in the currency than general goods/services?

Define "big difference", because I don't see it.

In the first case you had to prepare the food and obtain the know-how in order to do that. You also have to clean up afterwards. You input additional time.

You also ate a lot more than you would have at a restaurant, so in the second case you ate let's say $5 and created $5 of economy activity.

In the first case I ate fast food in a box which cost $10, just I had the food, not money

I start the above experiment with something that has value $10 (either a box of food or a $10 note), and I'm going to consume it. There are two different way to consume that value, but the result is totally different

In normal economy books, they always tell you that money is universal equivalent, but in this case a 10 dollar note is not equivalent at all with a box of fast food which priced at $10. The dollar note can create economy activities again and again without being consumed, but a box of fast food can not, that is the big difference I'm looking into: What makes currency so different than consumable goods/services

Currency is just a record of your consumption adventures (ate a BigMac, fueled a Car, etc)... Think general ledger (accounting).

No? You sure about that? What did you have? It cost $10, so if you avoided economic activity, it must have all been home-grown. Which means that $10 must be the pro-rated "labor" cost. How much are you "paying" yourself to do all that work?

Even a tomato sandwich is a lot of work, if you did not create any other economic activity thereby. You have to grow the tomatoes, and the wheat for the bread, maintain the cows and chickens for the milk and eggs, I suppose you could have it on sourdough, so you've got a wild yeast, rather than a commercial one. That still leaves salt. I hope you used sea salt, mining salt is notoriously difficult and laborious. And if you used any condiments other than that salt on your sandwich, that's even more work.

I like mayo on my tomato sandwiches, how about you? That's more eggs, oil, vinegar, more salt, maybe some lemon juice, sugar... your little backyard garden is starting to turn into quite the plantation.

Or maybe you bought the bread, mayo, tomatoes and salt? With $10, that leaves enough for a bag of chips, too. And that creates economic activity. Call it "I, Sandwich."

The post above me nailed it.




AC

Well, how would you pay for meal if there would be no currency? In order to get $10, you need to earn it by producing something for someone the same way that other guy earned it by preparing meal for you.

Well, you could decide to keep the lunchbox for a while and then sell it for $ 10….

Money is easy to keep safe and to transfer to other people than, let say, a sandwich. However, in countries that experienced a currency crisis (Argentina default 1999-2002 or Ruble crisis 1998), you can see that barter were used for a while instead of currency transactions. In this case goods and/or commodities were more trusted than “money”.

Myrkul is 100% correct Without at least the Prime Resource of labour alone, nothing "economic" ever happens. If your hastily concluded labours paid and fed you a $10 sandwich for "nothing" I'd say you have a very attractive business model you should sell to Mcdonalds.

The Global Marketplace's "currency" exchange rate for a particular nation's people's economic Medium of Labour-Exchange (money, bucks, loot etc) is it's current comparative exchange-value relative to the current comparative exchange-values of other nation's people's economic Mediums of Labour-Exchange (money, bucks, loot etc).

Right now (or "currently" ;D ) the Bitcoin-securitized electronic Funded Credit Swap is the most "un-loot-like" form of "loot" ever devised, being as it represents only the exchange-value of all the fruits of all-humans labours alone, independent of any national-socialist economic-ghetto entity and is wholly-owned by it's bearers and acquirers (aka counter-parties) alone.

A global-human's Bitcoin "currency" exchange-rate is independent of any national-socialist economies' monetary corruptions, debts, wealths, trade surpluses or deficits. Bitcoin is an economic "loot" without an economic "ghetto".

"Currency" is a money changing term describing the current comparative value of a particular brand of "economic loot" at a given place and time.

That box of lunch I have at the beginning of the experiment can be just bought with $10, the point is that it should have the same value as a $10 cash note, to be able to comapre

Anyway the difference is, if I just consume it, it will not create any further economy activity, if I spend the money to exchange for it, the money I spent will cause a chain of economy activities. So the economy activities are caused by currency but ends at consumption of the goods/services

Have you heard about the planned economy? In a planned economy, everything you get is just goods/services from the government, only very little money, so as my experiment shows, without money, there will not be a chain of economy activities. Normally people say the shortcoming of a planned economy is that they do not have some kind of price/market mechanism to efficiently allocate the resource, but I think maybe the core reason it did not work well comes from there is very little money used in that kind of economy

You get the "missing the point" award.

Unless you do all the work yourself every act of consumption drives the economy. There is no functional difference between a $10 lunch you made at home, and a $10 lunch you bought at a restaurant. Both created $10 of economic activity.

You have some good point here: Money can be stored for a long time (if the trust is not broken), and it can exchange for a big variety of other goods/services. I think this is the right direction to further dig into

Some times when in a currency crisis, you need to do barter for a while, but since the above mentioned currency's universal equivalent property, people will always prefer to use such kind of medium of exchange

In both cases, every party produced $10 worth of value, and consumed $10 worth of value.

In the first case, there is only one person, and that person created a $10 lunch, and then consumed it.

In the second case, you have to keep in mind that the chain is infinite in both directions.  You got the $10 from someone by trading a similar value for it, and they got it from someone else by the same system, and ditto for the lunchmaker, and the person the lunchmaker trades with forever into the future.

The chain is also virtual, since commerce is really a web, not a chain.  A few threads may break, but the overall web goes on forever.

Money is just a way to virtualize barter.  Rather than trading wealth for wealth, you can trade wealth for a claim to wealth, and later redeem that claim.  Now virtualized, trade no longer needs to be atomic.  The giving and the receiving can now be done at different times, and between different parties.

Of course, this is just a metaphor.  Trade is still atomic, you still give and receive at the same time, and with a single party.  But the widespread acceptance of money allows you to act as if the metaphor was real.

To illustrate the difference more clearly:

I still use $10 worth of goods to exchange for a lunch, but this time I use one basket of apple grown from my tree. The restaurant owner need to buy some apples for his children, so he exchanged the lunch for my basket of apples and gave these apples to his children

In this case, there is no money involved, the consumption ends when I ate the lunch and his children ate the apples, nothing left, no futher economy activities

But, if I first sell my apples to the market and make $10 cash, and then spend the cash to buy the lunch, this cash will be spent again by the restaurant owner to buy apples from the market and my apples still would be consumed by him, but some one in this chain of activities (for example the apple retailer) could make some money too, so at least we could say that the introduce of currency will cause more economy activities

Except the $10 he didn't have to spend at the market for apples got spent elsewhere, creating economic activity.

Money is just grease for the gears of commerce. They still move if you're bartering, just less smoothly.

Suppose this $10 is the only money in the whole system

The purpose of my experiment is to study the difference between currency and general goods/services, not from a user perspective, but rather from a currency maker perspective (why making currency is different than making other general goods/services)

So far some points:

1. Currency will never get consumed, so they will not disappear from the economy. General goods/services will get consumed and disappear from circulation, so they need to be produced continuously

2. The currency depreciate slowly while general goods/services depreciate quickly, so the currency works as a store of value. This is maybe the most important difference, anything with value that lasts longer than currency should be able to work as a currency to exchange value (gold is such a good currency since it almost never depreciate, while silver is not so stable, could be oxidized)

3. The economy activities are driven by currency, not demand. People have all sorts of demand, but unless they get currency first, they will not easily get their demand fulfilled, even others have the product they want， their product might not interest others. In today's society most of the goods/services can only be purchased with currency, not through barter.  This had some influence on people's behavior, they use the currency as a standard measurement of value

There is no functional difference. A currency is simply the good that is accepted by everyone in exchange for their goods or services.

That actually depends on the currency. Gold, for instance, slowly gets rubbed/abraded away. The US Dollar, being made mostly of paper, is subject to some pretty serious wear, such that the average lifespan of an individual bill is less than two years. Gold, therefore needs to be re-minted, and dollars shredded and re-printed.

An oxidized silver coin is still silver, and still holds value. Additionally, a currency does need to be a good store of value, but that's only one necessary feature.

And this is just plain wrong. Economic activity is not driven by money. It's made easier by money, but it's driven by demand. What you have to realize is that even if you're buying something with money, you're still using barter. Money is just a universally accepted barter good.

I remember that I played a game called SimCity many years ago, in that game you are the mayor start with 50,000 dollar, you have to build the road, build the water pipes, provide electricity and plan different district as residential district/business district etc... And there will be people moving into the city and work there, and give you some tax income

Due to limited budget, I have to start with building small and functional blocks and slowly accumulate more income through tax and upgrade the size and capacity of the city little by little

But the first thing I did, is to use a tool to modify the start budget to be 1 billion dollar, so that I can build whatever I want. In fact, after removing the limit on the currency, I can drive very large government projects quickly like highway, tunnels, airport, nuclear power plant and modern minicity, all with fiat money I created by typing 0s, and many people moved into this modern city and build many other things they like, every thing looks great, the only limitation is time when a new technology is available, and the amount of police I have to set at each block to reduce the criminal rate

That's my experience, the more currency you have, the more economy activities you can drive, this is just a common sense, do not need any second thought. Just like when a big customer arrived, everyone will be able to make big money. They never thought that the money itself will lose value unless they all get access to that newly created money at the same time

https://dl.dropboxusercontent.com/u/146411/ohpo9t.jpg

See, there's your problem: you're basing your economic theories on a flawed (by necessity, top-down) simulation.

It's a game, not an accurate model.

Of course it's a game, but at a higher abstraction level, everything is a game, the solar system is also a game played under certain physical rules. Can you point out why printing money does not work by some real facts? I think basically the printing of money works, the economy developement after 1971 has proved this, but the big question is why only a selected few can print money, and how we can make sure their printed money are used on something that people really need

First off, the model is flawed. The real economy doesn't work from a top-down, planned method. People are not Sims.

Secondly: https://en.wikipedia.org/wiki/Austrian_economics

The biggest problem is that in a simulation, no real work has to be done.  In simcity, the game can turn an area into an airport or a nuclear plant just by flipping a few bits.  In reality, people have to build those things (and the things they are made from, etc, etc).  You can print money, but you can't print wealth.

If congress had a magic wand that could create wealth, they wouldn't bother printing money.  They don't have that wand, so they print money, which steals a little bit of value from all of the other money, and puts it where they want it to go.

But in Sim City, you can print wealth, because the game treats all Simoleans as being equal, even if you've just waved a magic wand and created them out of thin air.

Notice that in a simulation, you have all the technology available, the only thing needed is money and time. I think that's also the reason Germany and Japan were re-constructed very quickly after being heavily destroyed in world war II, since the technology are all kept intact

Although the money do not create an airport, but the money will finance big projects that build the airport, and that project will hire lots of workers and purchase lots of raw materials, which in turn create lots of employment. This is what I try to discuss at the beginning of this thread: Currency will create a chain of economy activities

And all this is based on the fact that people think currency is a store of value and universal equivalent exchange medium, they don't have easy means to access it unless by paying their labour, so when currency arrives, they work

IMO, the talk about inflation does not have a sound theory backing. Inflations are all temporary, since the increase in one product's price will increase the supply and bring down the price of this product later, pure supply and demand. Some one may argue that excessive supply of money will push up the price of everything in the society, but in my simulation, I do not spend those money on daily consumption goods, so it's clear that my spending of newly created money will not cause inflation, but boom

There were very serious inflation incidents in history, but I think in those cases the amount of new money was created by several magnitudes larger speed, so the real economy could not keep up with the dramatically increased purchasing power. Fed has proved that a 4x increase in money supply will not change people's consensus of currency value

No, you are still missing something important.  Printing money does not create purchasing power, it merely redistributes it.

Germany and Japan were rebuilt quickly after the war because the US poured capital into them.  To the locals, it may have looked like someone hacked the game and created a bunch of wealth out of thin air, but that's not what really happened.  The new Europe was built in America, shipped across the ocean, and assembled by people fed by American farms.

You mean, in Sim City?  ::)

A little bit off topic now, I will focus on analyzing special characters of currency

As said, currency is very different from real goods/services, because its universal equivalent property, it is widely regarded as wealth, and the most liquid asset. Although all the economy books are denying currency is wealth, but you still can observe the economy effect created by currency

For majority of people, a job with $5000 salary each month is enough to make them happy and work, they don't care if this currency is created out of nothing, that's a simple fact you can observe everywhere

Currently many people complain FED's money printing because they still could not find a job and finance their housing, those printed money just went into banker's pocket. If they all can find a job with a good pay, they seldom question what FED is doing

So, if I start a project with lots of printed money, I could hire many people and pay them salary, the their increased income will bring increased spending in the society, and increased spending won't cause inflation, but only cause increased production from other society member (they want to make more money), resulted a boom

Money is not, itself, wealth. It only represents wealth. If you counterfeited (or arranged to have legally printed) a large sum of money for your startup, without creating a similar amount of real wealth, your new money represents nothing, which is the cause of inflation: The money that represents nothing is mixed in with the money that represents real wealth, like mixing in tungsten to gold, lowering the average real value of each currency unit.

This is only valid in mathematic calculation, the real world does not function this way

Because of limited vision, majority of people seldom question the real source of money. The money did get counterfeited from FED at amazing speed: 400% since 2008, and still 85 billion a month. But due to that people only care about work more and make more money, if there comes new money paying their salary, they will work. After their work, the corresponding wealth will be created, so they are willing to create new wealth to exchange for counterfeited currency, as long as many other people are running low on money too. If everyone is running low on money, the demand for money will be high

This gives central bankers a very good opportunity to counterfeit money when there is a recession. Since the currency never get consumed, people will never question the quality of paper/digital money like inspecting a gold bar

People are ignorant, everyone know that there are 4X more money entering the financial system, but as long as the price of everything do not change, they don't care, they think financial is a complex system and only very rich bankers understand how it works

And more money not necessarily cause higher CPI: Suppose you suddenly get 4x more salary, you will not buy 4x amount of the milk to drink, you will not consume 4x more gas for your car, your money might go to some luxury spending which is not included in the CPI, or you just hoard the rest of excessive money, as long as they are counterfeited by FED, it is legal, accepted by everyone

Another special character of currency discovered: Those who make the currency do not pay tax

Making everything else as an income should pay tax, but if you are making currency, you do not pay income tax. Since FED is a private organization, they should also run like any other business, pay income tax. The currency worth minus the cost (which is almost 0) is the income that they should pay tax to government, but they never paid  ::)

History would disagree:
http://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic

https://www.nytimes.com/images/2008/10/04/world/04germany_600.jpg

And Germany is not alone:
http://www.businessinsider.com/10-hyperinflation-stories-of-the-20th-century-2011-3?op=1

Notice the magnitude difference, not 4x like FED is doing now, it was 100 times to 1 million times more money printed in one or two years. And combined together with large government spending in millitary at war time, people didn't have enough time to produce so much goods to chase those money

It is the same in simcity, modify the money to be infinite does not make it possible to purchase the technology that has not been invented, most of the money are just sitting in the mayor's account doing nothing until later some more expensive technology appeared

Let's say that due to people's ignorance, if you counterfeiting money less than 2x per year, the price will be stable and there will not be significant inflation, but that won't change the fact that FED is conterfeiting money and people are accepting counterfeited money happily

Due to the special character of currency, the supply and demand curve for currency is very different than any other goods/services

The USD is supported by GOD:
Guns, Oil, and Drugs.

The US military (Guns) blows the shit out of any country that looks to be shifting away from the dollar for sale of Oil, and it's the currency of choice for black markets (Drugs) the world around. That creates, and maintains, an additional demand for the Dollar that keeps it's price from reflecting the supply.

Sorry, but this is bullshit.  The dollar has value because people want to hold it.  The existence of FOREX nullifies transactional demand as a source of value.  Despite the many problems with the dollar and the US economy, all of the others seem to be worse.

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How do you think Germany got started down that road?  You think they all got together one day and said, "Fuck it, let's print a quadrillion marks"?  Or do you think maybe the started smaller but it grew out of control?

Money is subject to market forces, just like everything else.  We tend to think of things as having a price in terms of money because it is convenient to have a universal unit of accounting, but the reverse is also true, money has a price in things.  If there are too many things, no one will want to part with much money to get them.  If there is too much money, no one will want to part with many things to get some.

This connects with what I said to myrkul above.  Comparing one currency to another shows the market forces directly and plainly.

If you want oil, you have to have Dollars first. If you have Euros, you have to buy Dollars with your Euros in order to buy oil.

You can't buy oil on FOREX.

If you want oil, you can use whatever currency you have to buy dollars on FOREX, use them to buy oil a millisecond later, and the seller can then dump them for whatever currency they want (again on FOREX) a millisecond later.

Perhaps some tiny sliver of value comes from those two milliseconds where people are holding them against their will, but the bulk of the value of any currency comes from people wanting to hold it.  No force in the universe, not guns, not oil, not drugs, can compel people to hold a currency they don't want to hold.

Maybe you missed it before.
You can't buy oil on FOREX.
And since the Dollar is the only currency you can use to buy oil, and every country needs oil, every country needs Dollars.

https://en.wikipedia.org/wiki/Petrodollar_warfare

No, I didn't miss it.  I just don't see the point.  I'm well aware of what you can and can't trade through FOREX.  You can't buy food on FOREX either.  So what?

Just because this crank theory is popular enough to have a wikipedia page, doesn't make it true.

Here is the flow:

1a.  Hans has Euros and wants oil.
1b.  Ivan has oil and wants Rubles.
1c.  Nameless other people (aka, "the market") hold Dollars, Euros, Rubles, etc and are willing to trade.
2.  Hans sells Euros (on FOREX) to the market, gets Dollars.
3.  Hans buys oil (not on FOREX), from Ivan, using Dollars.
4.  Ivan sells Dollars (on FOREX) to the market, gets Rubles.
5.  Everyone is happy.

Net demand for Euros:  down
Net demand for Rubles: up
Net demand for Dollars: no change

The petrodollar theory pretends that step 4 never happens.  To take it seriously, you have to imagine that oil producers are using dollars as garden mulch because they aren't aware that there is a global market that will instantly and for very low cost exchange them for whatever currency they actually want to be holding.

Yup, they sell those Dollars right back to the countries that just bought oil from them, and then use those currencies to buy imports, or use the Dollars directly to buy imports from the US... which of course benefits the US as well.

If you include the international trade, it becomes more complex. USD has strong demand at many places in the world, due to US's role of de facto world police, that also make it inflation immune. But for now don't push the topic into too complex context, anyway most of the other countries do not benefit from such a position

You can't buy Avalon with USD  :D

This is another special character of currency, by only accepting one currency for exchange of one hot goods/service, you could direct the wealth flow into this specific currency

Guns.

Doesn't sound so sinister when you realize that the dollars go to some guy in Ohio selling wheat, huh?

Ends don't justify the means.

I agree with that.  Where we disagree is that you think there is some "means" going on which needs to be justified, when clearly there is not, despite what dozens of bloggers and other quacks say.

Consider bitcoin.  Say you want to accept bitcoin as payment, but don't want to hold it, what happens?  You sell those bitcoins on an exchange, to someone that does want to hold them.  Say your buyer also just wants to use bitcoin as a payment method, but thinks it is too risky to hold.  Where do they get them?  They buy them on an exchange.  The net effect is that all of the value of bitcoins come from people wanting to hold them.

There is some friction involved, in that it takes effort and fees to move dollars (or whatever) into or out of the exchange, but FOREX has very little friction.  No one holds a FOREX currency against their will.

No, they don't. But if you could buy oil in anything other than Dollars, would there be as much transactional demand for Dollars? And don't forget the black market uses. So much of the Dollar is held, used and exchanged overseas, supported largely by the petrodollar and the might of the US military, that it makes the domestic supply pale in comparison.

http://www.icis.com/blogs/asian-chemical-connections/house-of-cards.jpg

Well, let me start by saying that people can buy oil with things other than dollars, and have been able to for about 5 years.  Over that period, the dollar index has grown higher and less volatile.

Next, black market uses are about as close to free market as you can get.  People operating illegally are already doing so under the threat of violence, so I can't see how the US could coerce them into using the dollar against their will.  I'm forced to conclude that they use dollars because dollars are the most useful to them.

Your third point is just a restatement of your conclusion.  You don't win arguments by repeatedly asserting what you want to be true.

Why do people use the Dollar in black market exchanges?
Because it is accepted everywhere.
Why is it accepted everywhere?
Because you have to have them, if you want oil, and everyone needs oil.
Why do you have to have them if you need oil?
Because oil is only sold in Dollars.
Why is oil only sold in Dollars?
Because the US Military blows the shit out of every country who tries to change that.

The only reference I found to oil being sold in any other currency is an article from 6 months ago about China starting to sell oil in Yuan. And guess what I saw in that article:

Two options unfold from this: 1, WW3. 2, The fall of the Dollar economy.

Get ready for some serious shit.

I don't see any point in discussing this if you are just going to keep repeating your hypothesis.

P.S.  You should really learn to search better (http://uk.reuters.com/article/2007/12/08/uk-iran-oil-dollar-idUKDAH83366720071208).

http://en.wikipedia.org/wiki/Bomb_Iran
Iran has been in the crosshairs ever since.

Holy shit!  John McCain is a time traveller!  After learning that Iran was no longer exporting oil for dollars in December 2007, he travelled back in time to April 2007 to make a joke using a 27 year old song to warn them of the dire consequences of their decision.

Or maybe they had been considering doing that, making noises, as it were, for some time?
http://globalresearch.ca/articles/CLA410A.html

So far

1. Easy to carry/transfer/store
2. Almost never perish
3. Universal equivalent (wide acceptance)
4. Tax free

Currency itself does not have any utility, but in fact the utility is the biggest of all goods/services because of its universal equivalent property. It actually has all the utilities

In order to have that universal equivalent property, it must be widely accepted by all the merchants/producers. For fiat money, this is done by law enforcement, but for other natural currencies, that wide acceptance would take a long time to develop

Here, let me save you a lot of time and trouble: http://wiki.mises.org/wiki/Money

Fun fact:

https://dl.dropbox.com/u/146411/minimumwage.jpg

Good, these definitions especially the commodity money is easy to understand, different than the money wiki at wikipedia, where they use many different confusing abbreviations and terms (typically seen in a scam)

I still like to do the research by myself so that I can make more progress than books. Tax free for example is my discovery  ;)