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 Author Topic: What is special for a currency  (Read 2634 times)
johnyj (OP)
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 What is special for a currency May 07, 2013, 08:24:53 PM

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?

je1p7u7
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 Re: What is special for a currency May 07, 2013, 08:56:15 PM

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.
johnyj (OP)
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 Re: What is special for a currency May 08, 2013, 04:48:04 AM

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

BTConomist
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 Re: What is special for a currency May 08, 2013, 05:29:57 AM

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).

Bitcoins are earned, not traded! If you plan on hoarding BTC, you're on my target list. (And yes, it is possible to swim in BTC.)

Don't give me that Bull... I'm one of those honey eating Bears that the bees hope to never meet again... Viva la BTC!!!
myrkul
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 Re: What is special for a currency May 08, 2013, 06:25:05 AM

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

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."

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WilderedB
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 May 08, 2013, 06:48:29 AM

The post above me nailed it.

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mcgravier
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 Re: What is special for a currency May 08, 2013, 08:20:35 AM

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?

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.
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 Re: What is special for a currency May 08, 2013, 12:18:38 PM

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”.
agentbluescreen
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 Re: What is special for a currency May 08, 2013, 12:51:15 PMLast edit: May 08, 2013, 02:22:04 PM by agentbluescreen

Myrkul is 100% correct
Call it "I, Sandwich."
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" ) 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.
johnyj (OP)
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 Re: What is special for a currency May 08, 2013, 01:48:55 PM

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

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."

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

myrkul
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 Re: What is special for a currency May 08, 2013, 01:57:42 PM

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
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.

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johnyj (OP)
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 Re: What is special for a currency May 08, 2013, 01:58:18 PM

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”.

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

kjj
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 Re: What is special for a currency May 08, 2013, 04:53:00 PM

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?

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.

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johnyj (OP)
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 Re: What is special for a currency May 08, 2013, 07:37:32 PM

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
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.

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

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 Re: What is special for a currency May 08, 2013, 07:47:01 PM

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

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.

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johnyj (OP)
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 Re: What is special for a currency May 08, 2013, 11:14:50 PM

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

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

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 Re: What is special for a currency May 08, 2013, 11:45:05 PM

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

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
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.

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)
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.

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.
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.

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johnyj (OP)
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 Re: What is special for a currency May 09, 2013, 08:48:59 PM

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.
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

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 Re: What is special for a currency May 09, 2013, 08:52:10 PM

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.
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

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.

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johnyj (OP)
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 Re: What is special for a currency May 09, 2013, 09:29:53 PM

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

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