An Honest Introduction to Money

[dinofelis]

There's no need for an issuer.  China did fine between 1550 and 1850 with ingots of silver.  In fact, the more money is free of issuer, the better.  If there is to be an issuer, let the markets judge their creditworthiness, free of state intervention.

I fully agree with you.  However, you should maybe read "Debt, the first 5000 years", by Graeber.  It illustrates somewhat the fact that most money found actually its origin, not in markets, but by states, wanting to finance war and needing the seigniorage to pay their armies. 

Money's intrinsic value rarely, if ever, comes close to its monetary value (and this includes gold and silver.)  And this has worked fine for millennia.

In fact, this is even so by definition.  If a monetary asset had an intrinsic (usage) value, equal to its face value, then it wouldn't be money !
After all, what is money ?  Money is what is used mostly as an intermediate asset.  As such, the demand for it is MAINLY to be used as an intermediate asset (temporary store of value).  Hence the demand for it is *much higher* than the demand for its usage as a consumption or production capital good (which determines its intrinsic value).
So by definition, the demand for money must be much higher to be used as intermediate asset than as consumption/capital good, and hence the price of it, determined by that demand (in the face of the same offer) must be much higher than its intrinsic value.

Otherwise it wouldn't be money.

[BobK71]

A philosophical discussion is probably beyond the scope I originally planned, but I would just say that we do need some state to uphold some kind of universal values, in practice.  Without that, it would be the law of the jungle, or the law of organized gangs.

The law of organized gangs is just another name for states, right.
The state is the violence monopolist.  If a gang has enough power in a territory to be unchallenged, then it is the state.

The state is oppressive, but I wouldn't go quite as far.  In the post-Enlightenment world, the state has been constrained to some degree, and all I'm saying is that getting out of money should be the next constraint (similar to, say, staying out of for-profit business as the US government is officially required to.)

Note that (as I alluded to in the original post,) the most successful modern states in both military and monetary terms, ie the UK and US, have also been the most supportive of "liberal" values.  (I'm using "liberal" in a classical sense.)  Only these states can really "rob the world" because the world trusts in their promises to pay their debts.  So there is a kind of strangely poetic logic going on that the most purist libertarians may not realize.

The progress we're after requires a mass awakening.  And it can be argued that such an awakening will be the only true and permanent success.  Any quick victory probably won't be real.

[BobK71]

...  However, you should maybe read "Debt, the first 5000 years", by Graeber.  It illustrates somewhat the fact that most money found actually its origin, not in markets, but by states, wanting to finance war and needing the seigniorage to pay their armies.  

If we can take a slightly smaller view, say over the last five hundred years, we should recognize the success of the "Westphalian" system.  (The Peace of Westphalia set forth the principles of territorial integrity and non-intervention between European states, after the carnage of more than a century of warfare.  Notwithstanding Napolean, Hitler, Putin, etc. the system is largely successful, especially since the non-European world has largely adopted the spirit over the last hundred years.)

In the post-Westphalian world, even the biggest international contest and driver of monetary inflation, ie the rivalry between Britain and France in the 18th century, saw most conflict happen outside Europe.  Today's conflicts, say, between China and other countries, are over small bits of territory.

Absent the real need to protect people against foreign aggression, monetary control and inflation has no real justification in today's world.

[dinofelis]

If we can take a slightly smaller view, say over the last five hundred years, we should recognize the success of the "Westphalian" system.  (The Peace of Westphalia set forth the principles of territorial integrity and non-intervention between European states, after the carnage of more than a century of warfare.  Notwithstanding Napolean, Hitler, Putin, etc. the system is largely successful, especially since the non-European world has largely adopted the spirit over the last hundred years.)

I wouldn't call Europe a heaven of peace in the last 500 years   About every 50 years or so, there has been a devastating war in Europe over this time scale.

I think that the two elements which make regular warfare and conquest unprofitable today are the fact that two elements are usually required by the international community which has weight (essentially the USA, say):
- absence of slavery
- representative democracy.

As such, the usual goals of military conquest, namely enlarging territory, winning slaves and wealth from the conquered territory, and increase of power, now fall apart.  Slavery is frowned upon.  And if there is to be representative democracy in the conquered territory, that would rather lead to decrease of political power (if the conquered area is not favourable to your invasion, which is often the case).

So all the classical incentives of classical military invasion for a state have been ruined by the international pressure for absence of slavery and for representative democracy.

This is why most wars today are fought by proxies.  There is no political gain any more in direct conquest of territory.  It is only interesting if the area is remarkably rich, and much smaller than the invasion powers. 

Representative democracies will use their armies to gain geopolitical power without annexation but by destruction of regimes that thwart their own geopolitical strategies of obtaining stuff from others.

Absent the real need to protect people against foreign aggression, monetary control and inflation has no real justification in today's world.

It does.  After all, it is still the main tool to get goods, services and power to a small elite which shares financial and political power.

The goal of the state is to pump wealth from the productive to the elite.  This has always been so, and it the principal reason of existence of a state.  From the first kings to the most sophisticated form of modern government.  However, as the modalities change, and the ways to get power change.

[mrhelpful]

The banks are just a higher version of the mob lol.

They say we need the money or else! we blow up the economy anyways with poor practices of giving suckers like us to invest supposedly a worth AAA bond or some crap.

The only thing we can do is try to be better off, in reducing as much risk as possible if we ever get a chance to reach a high principal balance.

[techgeek]

I would worry more on whos about to be the next world currency reserve, cause theres a slight chance the u.s will fall off and possible china can take it.

Just the fact that their whole growth is 10x larger, and they been playing chess with how they should approach the situation. Cant predict which one will win, but stay on top of whos winning or has the chance to take over the world foreign reserve.

[username18333]

The goal of the state is to pump wealth from the productive to the elite.  This has always been so, and it the principal reason of existence of a state.  From the first kings to the most sophisticated form of modern government.  However, as the modalities change, and the ways to get power change.

What system is in place to prevent individuals from issuing/spending more money than they earn (in the past or future?)

In those days there was no king in Israel; every man did what was right in his own eyes.

In the case of Great Empire and the G.E. coin, your statement is inaccurate.

[dinofelis]

Note that (as I alluded to in the original post,) the most successful modern states in both military and monetary terms, ie the UK and US, have also been the most supportive of "liberal" values.  (I'm using "liberal" in a classical sense.)  Only these states can really "rob the world" because the world trusts in their promises to pay their debts.  So there is a kind of strangely poetic logic going on that the most purist libertarians may not realize.

I think there's a subtlety there.

I define money as follows:
"money is money because most people think that most people think that it is money".

And that's also what is going on with what you're saying.  In fact, nobody thinks that the USA, or the UK, are going to pay their debt.  After all, since Nixon, a dollar changed from a virtual IOU into a real IOUN (I owe you nothing).  This was already de facto the case: nobody was really claiming their gold, and there wasn't enough of it for the IOU to even be slightly credible.  It was when Charles de Gaulle from France wanted his physical gold, that Nixon was forced to give him a middlefinger.  In reality, actually, de Gaulle had been getting gold from the USA against french dollars since 1965.  It was when this really became difficult to maintain, that Nixon stopped it - it would become clear that the IOU was not covered.

A dollar on which is printed "this note is legal tender for all debts, public and private" has on its other side "in God we trust".  Meaning probably "hey, I owe you nothing, but go and see God, maybe he'll jump in".

What can you get, from the USA, with a dollar bill ?  Another dollar bill.  That's about what the IOUN means.  So what trust in what ability to pay what debt ?

The dollar is a world currency, because everybody thinks that everybody thinks that it is money.  But in the original issuer, the USA, no trust has to be placed for that, as they owe you nothing against it.  That makes that the USA, with its ability to print those bills, can buy the world, against nothing.

[username18333]

A dollar on which is printed "this note is legal tender for all debts, public and private" has on its other side "in God we trust".  Meaning probably "hey, I owe you nothing, but go and see God, maybe he'll jump in".

That was added in 1954, if I remember correctly, to (help) rally the American public behind its government's aggressive posturing towards the officially atheist U.S.S.R.

But in the original issuer, the USA, no trust has to be placed for that, as they owe you nothing against it.  That makes that the USA, with its ability to print those bills, can buy the world, against nothing.

The U.S. government only makes the U.S. dollar legal tender by ensuring that it can be used to pay debts. It is the modern American consumer  economy that creates those debts and the private banks of the U.S. Federal Reserve system that "print those bills" (dinofelis) through debt (e.g., buying U.S. government bonds therewith).

[dinofelis]

The U.S. government only makes the U.S. dollar legal tender by ensuring that it can be used to pay debts. It is the modern American consumer  economy that creates those debts and the private banks of the U.S. Federal Reserve system that "print those bills" (dinofelis) through debt (e.g., buying U.S. government bonds therewith).

So those obtaining those bills are essentially the US government, which can, as long as the US dollar is world reserve currency, buy up the world against it.

Which they did:


http://en.wikipedia.org/wiki/Balance_of_trade#/media/File:Cumulative_Current_Account_Balance.png

[Razick]

The purpose of the state is to uphold the values that have been agreed to by all members of society.

1) This is impossible since 100% will never agree on even basic values.

2) A majority or super-majority is an alternative, but...

3) as history will demonstrate the majority is often wrong.

4) Right and wrong are not determined by the majority, morality is absolute. What is right can be right even if everyone thinks it is wrong.

Although some people will disagree with me on this, I will still say it: murder is wrong is not an opinion but a fact. We can disagree about what constitutes murder, but every reasonable human being *must* accept that murder is wrong in order to participate in a credible discussion of ethics. This fact should reveal that ethics are absolute rather than a societal consensus. After all, in some societies human sacrifice or mass murder has been acceptable, but those actions are still objectively wrong.

A philosophical discussion is probably beyond the scope I originally planned, but I would just say that we do need some state to uphold some kind of universal values, in practice.  Without that, it would be the law of the jungle, or the law of organized gangs.

Very true, I just wanted to point out that the state is not the source of morality.

[username18333]

So those obtaining those bills are essentially the US government, which can, as long as the US dollar is world reserve currency, buy up the world against it.

However, the U.S. government owes more on each "bill[]" (dinofellis) than its face value (regardless of whether or not it has been spent), for its bonds (at least, at present) pay positive interest.

[Pab]

 That maybe you dont know,i dont know who said that,propably Lenin
Money in hand of our enemy can be dangerous weapon
money in hands of our own people is the most dangerous enemy


My thoughts
Looks like that we all,living in diffrent countries,we are all living in totalitary system,and we are the the most dangerous enemys

[BobK71]

I would worry more on whos about to be the next world currency reserve, cause theres a slight chance the u.s will fall off and possible china can take it.

Just the fact that their whole growth is 10x larger, and they been playing chess with how they should approach the situation. Cant predict which one will win, but stay on top of whos winning or has the chance to take over the world foreign reserve.

I think the US is actively trying to keep China from taking the succession (if there is to be a next global power.)  Instead, it is trying to give it to India, if and when it's ready.  IMO the US is playing the role of Britain in late 19th century, China is playing Germany, and India is playing the US.  This also makes sense if you look at the political cultures of the countries.

Things might work out differently this time.  World War One was able to knock out Germany for good, but such a thing is unthinkable now.  China might not be able to step into the throne, but it can be a constant thorn on the side of the established order.

This in itself would be good for keeping each country (relatively) honest (ie in a monetary and financial sense) through rivalry and competition.  What we want to watch out for is collusion, of the kind during the 90s, when China was the world's biggest supporter of the dollar and cheap Chinese imports allowed US interest to stay low in the middle of the great buildup of the financial house of cards and the great movement of wealth to the elites.  (The cause for optimism is that even this lasted only 15 years before the elites shot themselves in the foot with the 2008 crisis.  The system really is doomed.)

[username18333]

(The cause for optimism is that even this lasted only 15 years before the elites shot themselves in the foot with the 2008 crisis.  The system really is doomed.)

Couldn't the plutocracy merely have the U.S. Federal Reserve system accept and issue the Federal Reserve Note II (i.e., a new one) instead of the Federal Reserve Note?

[BobK71]

If we can take a slightly smaller view, say over the last five hundred years, we should recognize the success of the "Westphalian" system.  (The Peace of Westphalia set forth the principles of territorial integrity and non-intervention between European states, after the carnage of more than a century of warfare.  Notwithstanding Napolean, Hitler, Putin, etc. the system is largely successful, especially since the non-European world has largely adopted the spirit over the last hundred years.)

I wouldn't call Europe a heaven of peace in the last 500 years   About every 50 years or so, there has been a devastating war in Europe over this time scale.

I think that the two elements which make regular warfare and conquest unprofitable today are the fact that two elements are usually required by the international community which has weight (essentially the USA, say):
- absence of slavery
- representative democracy.

As such, the usual goals of military conquest, namely enlarging territory, winning slaves and wealth from the conquered territory, and increase of power, now fall apart.  Slavery is frowned upon.  And if there is to be representative democracy in the conquered territory, that would rather lead to decrease of political power (if the conquered area is not favourable to your invasion, which is often the case).

So all the classical incentives of classical military invasion for a state have been ruined by the international pressure for absence of slavery and for representative democracy.

This is why most wars today are fought by proxies.  There is no political gain any more in direct conquest of territory.  It is only interesting if the area is remarkably rich, and much smaller than the invasion powers. 

Representative democracies will use their armies to gain geopolitical power without annexation but by destruction of regimes that thwart their own geopolitical strategies of obtaining stuff from others.

Absent the real need to protect people against foreign aggression, monetary control and inflation has no real justification in today's world.

It does.  After all, it is still the main tool to get goods, services and power to a small elite which shares financial and political power.

The goal of the state is to pump wealth from the productive to the elite.  This has always been so, and it the principal reason of existence of a state.  From the first kings to the most sophisticated form of modern government.  However, as the modalities change, and the ways to get power change.

Besides the end of slavery and democracy, another modern sign of progress is the idea of territorial integrity.  This is what makes it impossible for the US to do what Britain did, i.e. acquire colonies around the world and force them to keep paper sterling as reserves.  The world simply won't allow it.  The US only dominates the world indirectly by stirring up trouble (consciously or not) among countries and peoples and taking the role of the "balance of power" (i.e. by becoming the deciding force by siding with one side or the other.)  This is not ideal, but it's progress.  Domination at least requires the nod from the local elites.

[username18333]

Besides the end of slavery and democracy, another modern sign of progress is the idea of territorial integrity.  This is what makes it impossible for the US to do what Britain did, i.e. acquire colonies around the world and force them to keep paper sterling as reserves.  The world simply won't allow it.

Ensuring that barrels of oil are sold for USD (thus creating a merket therefor) effectively makes oil consumers (i.e., the world) a "slave" (i.e., they don't receive compensation specifically for their contribution) of the U.S. economy.

[johnyj]

it is people's trust of fiat money give the money creator right to rob them

If “people” (johnyj) should each, individually, prove a “money creator” (johnyj), need these concern themselves with the “right to rob” (johnyj)?

When you create 1 dollar worth of money using 1 dollar worth of resource/labor, then there is no robbery involved, just fair trade. However, if you write some numbers on a paper and use it as 1 dollar, then that is not fair trade. But still, many people accept this paper and regard it as something with 1 dollar's value. So it involves some trust and time related tricks

In a communist country like North korean, if you don't use fiat money you will be executed. But in a western modern democracy country, the mass adoption of fiat money is purely voluntarily. Is it because everyone's income is received in the form of fiat money? Or people only trust the most powerful organizations like government?

[BobK71]

What can you get, from the USA, with a dollar bill ?  Another dollar bill.  That's about what the IOUN means.  So what trust in what ability to pay what debt ?

The dollar is a world currency, because everybody thinks that everybody thinks that it is money.  But in the original issuer, the USA, no trust has to be placed for that, as they owe you nothing against it.  That makes that the USA, with its ability to print those bills, can buy the world, against nothing.

This goes to show (as my original post stated) that money is just a standard.  As long as people trust a money, it will have value.  Granted, modern state issued money is probably doomed long-term, it can last a while, as the totally fiat dollar has lasted 40+ years since Nixon shut the gold window.  And the standard's longevity will depend on how well it's managed by its issuer.

What the elites seem to want is to enjoy today while it lasts.

As for the "true nature" of money, there's the whole spectrum from people who believe only commodity money is "real", to chartalism that believes the state owns all the rights to money.  I believe you can't really take a scientific approach by stating the nature of money, and then proceeding to prescribe the system around it.  For better or worse, with 99% of the people willing to believe essentially what the authorities tell them, money is still basically a political subject.  The very statement of the nature of money is politically tainted, or perceived to be.  The discussion is much more fruitful and less prone to religious-war problems when we take an operational perspective.

[username18333]

When you create 1 dollar worth of money using 1 dollar worth of resource/labor, then there is no robbery involved, just fair trade. However, if you write some numbers on a paper and use it as 1 dollar, then that is not fair trade. But still, many people accept this paper and regard it as something with 1 dollar's value. So it involves some trust and time related tricks

(You missed the gist of my post.) What does that matter when any- and everyone may do so?