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Author Topic: Should money have intrisic value ?  (Read 9497 times)
grondilu
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December 02, 2010, 09:51:14 PM
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The thread about "money as debt" from P. Grignon makes me think about this old debate concerning the intrisic value of money.

It's a debate I had many times with people having contempt for gold, describing it as a "useless soft metal" or a "barbarous relic".  I also think that gold is mainly useless, or more precisely, that its use is only based on the fact that it is ideal as a money, due to its remarquable properties.

However, I confess I'd have some difficulties explaining why money doesn't need intrisic value.  I have ideas about this but it's still quite confuse.

What do you think about that and can you elaborate ?

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December 02, 2010, 11:02:49 PM
 #2

It helps in case of an economic collapse to have a currency with value beyond being an accepted unit of exchange.
Paper money is useless as soon as the central bank collapses or hyperinflation happens.
Gold/silver/etc will always have at least a base value due to its uses as a commodity.
Another advantage is that it is hard to produce, you cannot simply print it or update some database record. This limits inflation.

Disadvantage of using a commodity as money is that it is generally heavy, expensive to protect, and you need to continuously verify that a certain unit still matches a certain number of grams of commodity. For example, it used to be quite popular to scrape off a bit of each coin and sell the remaining gold once in a while.

So yeah... no approach is perfect.

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December 02, 2010, 11:09:59 PM
 #3

I know that I'm being anal here, but money and currency are not the same thing.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
grondilu
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December 03, 2010, 12:06:46 AM
 #4

Another advantage is that it is hard to produce, you cannot simply print it or update some database record. This limits inflation.

Well, this is not characteristic to physical commodities.  It's the whole point of bitcoin.  It is hard to produce, though it has no intrisic value.
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December 03, 2010, 12:07:54 AM
 #5

Gold is very useful. If it were more plentiful, people would use gold.

Gold have medicine, electronic, and decorative use.

grondilu
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December 03, 2010, 12:08:17 AM
 #6

I know that I'm being anal here, but money and currency are not the same thing.

Well, unless I'm wrong about the difference between those concepts, I'm currently talking about money.
grondilu
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December 03, 2010, 12:12:51 AM
 #7

Gold is very useful. If it were more plentiful, people would use gold.

Gold have medicine, electronic, and decorative use.

Sure, but it's quite marginal.  I think we can, for the sake of the argumentation, consider it has no value.

Anyway I'm just realizing how futile is this debate, considering that fiat currencies ARE money with no intrisic value.


Somehow it's amazing people accuse gold of not having any value when they don't do the same to fiat money.
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December 03, 2010, 12:26:23 AM
 #8

Mass, temperature, color are some properties of objects that exist with or without humans. Value only exists contingent on the existence of humans who have certain preferences. Nothing has value to you once you die and nothing has value to "us" once we're all gone. Value is completely dependent on us. Nothing has value in and of itself.

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grondilu
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December 03, 2010, 12:32:17 AM
 #9

Mass, temperature, color are some properties of objects that exist with or without humans. Value only exists contingent on the existence of humans who have certain preferences. Nothing has value to you once you die and nothing has value to "us" once we're all gone. Value is completely dependent on us. Nothing has value in and of itself.


By "intrisic", I didn't mean beyond human judgment or anything.

It was rather as opposed to "conventionnal" or "arbitrary".

Value is the faculty for something to be desired by a human being.  Now, someone can desire something because he thinks someone else will desire it and thus it will be possible to trade it.

Therefore, I think we can say that something has intrisic value when there is at least one human being who can desire to possess it without ever giving it away to someone else.
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December 03, 2010, 12:48:22 AM
 #10

Mass, temperature, color are some properties of objects that exist with or without humans. Value only exists contingent on the existence of humans who have certain preferences. Nothing has value to you once you die and nothing has value to "us" once we're all gone. Value is completely dependent on us. Nothing has value in and of itself.


By "intrisic", I didn't mean beyond human judgment or anything.

It was rather as opposed to "conventionnal" or "arbitrary".

Value is the faculty for something to be desired by a human being.  Now, someone can desire something because he thinks someone else will desire it and thus it will be possible to trade it.

Therefore, I think we can say that something has intrisic value when there is at least one human being who can desire to possess it without ever giving it away to someone else.


Okay. Are we sure there is not one person who enjoys a good bitcoin? Or prefers the feel of the USD to toilet paper?  Smiley

Also someone might think "I just need to get a lot of dollars to show people my huge bank statement" then later trade them away, but for a while he wanted them for their own sake. Or maybe he even dies still thinking this before trading.

But I'm just being picky now, I understand what you mean.
 

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December 03, 2010, 02:11:22 AM
 #11

I know that I'm being anal here, but money and currency are not the same thing.

Well, unless I'm wrong about the difference between those concepts, I'm currently talking about money.


Then I'm really confused, because money requires an intrinsic value by definition.  However, it might be lost in translation because based on this thread, many don't understand the word "intrinsic".  It's a tough one to explain, but gold has intrinsic value because it is valued outside of the context of an orginized intent to support it.  Fiat currencies have negligble intrinsic value because most of their value (as a medium of exchange) is directly related to the support of a third party institution, in this case a functioning government.  If said government's future existance is put into question, the fiat currency's value is also.  Likewise, a currency issued by a bank, whether backed or not, is tied to the public's trust in that bank.  Something has intrinsic value if it is generally valued regardless of the issuing institution; such as the case of gold coins minted by long dead governments.  Commodities have intrinsic value because they can be used to build, fuel or eat.  I wouldn't say that bitcoins have any intrinsic value, because they have no usefulness outside of the context of a medium of exchange, and fundamentally depend upon the trustworthiness of the blockchain for their base value.  Bitcoins are, therefore, not money and not a commodity.  Bitcoins are only a currency, but an intentionally designed "natural" currency because they are only accepted by choice and have no artificial support from legal tender or tax payment laws.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 03, 2010, 03:28:06 AM
 #12

I know that I'm being anal here, but money and currency are not the same thing.

Currency = small physical money tokens (coins & notes).
Money = more general concept of spendable stuff including currency and credit.
(My summary based on http://en.wikipedia.org/wiki/Currency and http://en.wikipedia.org/wiki/Money )

Then I'm really confused, because money requires an intrinsic value by definition.

I'm not sure about that.  Which definition?

I thought money's main necessary properties were
  • Mostly conserved.  Sure you might lose some if careless, but you can't duplicate it (double spend, shaving the edge off gold coins, counterfeits).
  • Like currency, needs to be transferred around in useful-size easy-to-validate denominations without too much inconvenience (= cost).
  • Scarce.  Hence, in part, the Hitchhiker's Guide joke about using leaves off trees as money?  I put it last, but I suspect it is of primary importance.

Various forms of money have problems,
  • Consider diamonds & rubies as currency.  Now they can be made (some would say counterfeited) industrially it is very difficult to justify or enforce a high price for the ones coming out of mines.
  • Consider the popular electronic fiat money forms - credit cards and paypal.  The inconvenience here seems to me to be running quite high (~5% per transfer).  How this compares with the old days of shipping gold coins on horseback, I don't know.
  • Gold is nicely scarce.  Fiat money less so?  Of course some people have not enough to live, but others make (!!) oodles of it.
Quote
However, it might be lost in translation because based on this thread, many don't understand the word "intrinsic".

Actually I'm skeptical about "intrinsic value" of any object, it seems to be an oxymoron; but grondilu tweaked the question.

Does money need to be useful for something else?  I suspect not, but back when money was just currency the options were more limited.

As kiba said, gold is good for decoration & its physical properties.  If it wasn't useful, we wouldn't work so hard to dig it out; but if it's not hard work to get some more, the "scarce" property is absent.

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kiba
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December 03, 2010, 03:49:40 AM
 #13

Intrinsic value is required for money to arise in a barter economy.

Once we get beyond that, we can now bootstrap a currency like bitcoin.

Now we have information by which we can perform economic calculation.

grondilu
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December 03, 2010, 05:17:43 AM
 #14

Then I'm really confused, because money requires an intrinsic value by definition.

I'm not sure about that.  Which definition?

I thought money's main necessary properties were
  • Mostly conserved.  Sure you might lose some if careless, but you can't duplicate it (double spend, shaving the edge off gold coins, counterfeits).
  • Like currency, needs to be transferred around in useful-size easy-to-validate denominations without too much inconvenience (= cost).
  • Scarce.  Hence, in part, the Hitchhiker's Guide joke about using leaves off trees as money?  I put it last, but I suspect it is of primary importance.
Agreed.  It has to be indestrucible, divisable and scarce.
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December 03, 2010, 06:12:02 AM
 #15


There are so many things wrong with this post, I may have trouble untangling it, but I will try.


Currency = small physical money tokens (coins & notes).
Money = more general concept of spendable stuff including currency and credit.
(My summary based on http://en.wikipedia.org/wiki/Currency and http://en.wikipedia.org/wiki/Money )


Wikipedia is nice, but is sometimes a poor reference.  This is one of those times.

Currency is a commonly accepted unit of exchange.  It does not need to be more, but is often 'backed' by some promise from it's issuing agency, such as a gold standard.  It is best when it is very difficult (read expensive) to fake, which is why paper currencies are ever increasing the 'security measures' in their notes.  Also, a currency is an arbitrary mathmatical unit of measurement, in much the same vein that both an inch and a meter are arbitrary units of length.  Both measure the same thing, just as the US $ and the Euro both measure an elusive concept of quantifications of value, but the units themselves are simply a matter of convention.

Money, in the other hand, isn't a unit.  An ideal money has several characteristics that lend to it's suitability as a natural currency, but it does not need to be a currency.

Those characteristics are...

Durability - It cannot rust or rot.  Nor should it require a container to either protect it from harm or it's user, one reason that mercury was never used as a money as far as I know.

Divisability - The ability to 'make change' without impacting the value of the money.  Cattle have a definable value, but are a terrible way to pay one's mortgage.

Fungibility - This basicly means that the quality is uniform, so that one measure of the money is equal to any other.

Transportability - This should be self evident, but the money should be valuable enough that carrying it shouldn't be a burden.

Congizability - Which means that money should be easily recognizable as probably being authentic by normal human senses, without the need to trust testing devices or experts.

The above conditions, historicly, have only been met by material classes that we commonly refer to as commodities, but the closest naturally occurring commodity to the ideal money has always been refined gold.

Quote

Then I'm really confused, because money requires an intrinsic value by definition.

I'm not sure about that.  Which definition?

I thought money's main necessary properties were
  • Mostly conserved.  Sure you might lose some if careless, but you can't duplicate it (double spend, shaving the edge off gold coins, counterfeits).
  • Like currency, needs to be transferred around in useful-size easy-to-validate denominations without too much inconvenience (= cost).
  • Scarce.  Hence, in part, the Hitchhiker's Guide joke about using leaves off trees as money?  I put it last, but I suspect it is of primary importance.
Scarcity is not a requirement of money, and can be a detriment.  Historic case, platinum is much more rare than gold in nature, but also rare enough that most people had no experience with it (this was also somewhat true with gold, which is why nations traded in gold but the citizens traded mostly in silver or copper) so the Spanish made cannons out of platinum that was mined in central America.  Also, scarcity doesn't always equate to concentration of value.  Although silver is about 17 times more abundant in nature than gold, there is much more gold in a refined state than silver today.  This is mostly due to the fact that silver is an industrial commodity in our modern world, with little to no monetary value, so most of the silver mined has been consumed in industry; whereas gold's monetary value has always priced it out of it's industrial uses, so nearly all of the gold that has ever been mined in recorded human history can still be accounted for.

Quote

Various forms of money have problems,
  • Consider diamonds & rubies as currency.  Now they can be made (some would say counterfeited) industrially it is very difficult to justify or enforce a high price for the ones coming out of mines.
Jewels might have a high unit value, but they still make a poor money because they are neither fungible (two diamonds may both be the same carrot rating, but one be more valuable for some other characteristic, such as cut, color or clarity) nor are they congizabile (it's an expert skill to be able to judge the value of a diamond).  They don't always have a high unit value, either.

Quote


  • Consider the popular electronic fiat money forms - credit cards and paypal.  The inconvenience here seems to me to be running quite high (~5% per transfer).  How this compares with the old days of shipping gold coins on horseback, I don't know.
I'm not sure of your point here, paper currencies were originally receipts of gold on deposit at a goldmonger or bank, and were traded as a symbol of that gold.  The improved portability of paper over metal is not a new concept, and neither is the improved portability of electronic forms of credit, but neither is an example of a money.

Quote

Does money need to be useful for something else?  I suspect not, but back when money was just currency the options were more limited.


Again, you seem to be conflating the two concepts.  They are related, but still distinct.

Quote

As kiba said, gold is good for decoration & its physical properties.  If it wasn't useful, we wouldn't work so hard to dig it out; but if it's not hard work to get some more, the "scarce" property is absent.


The scarcity of gold, relative to many other comparable commodities, is absent.  You need to get past the idea that scarcity is a condition of value, it's not.  Your fingerprints are rare, but I would say you would be suspicious of anyone who valued them.  Water is the most abundant molecule on the planet, but has a quantifiable value almost everywhere.  The difference is that water has common utility, whereas your fingerprints do not.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 03, 2010, 06:18:49 AM
 #16

Intrinsic value is required for money to arise in a barter economy.

Once we get beyond that, we can now bootstrap a currency like bitcoin.

Now we have information by which we can perform economic calculation.

The introduction of money into a barter economy only serves as a 'unknown third party' barter, it doesn't otherwise alter the basis of the exchange.  I don't otherwise understand your statement.  What have we 'gotten beyond' in order to bootstrap, and why is it a prerequisite?

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 03, 2010, 06:23:57 AM
 #17

Intrinsic value is required for money to arise in a barter economy.

Once we get beyond that, we can now bootstrap a currency like bitcoin.

Now we have information by which we can perform economic calculation.

The introduction of money into a barter economy only serves as a 'unknown third party' barter, it doesn't otherwise alter the basis of the exchange.  I don't otherwise understand your statement.  What have we 'gotten beyond' in order to bootstrap, and why is it a prerequisite?

http://bitcointalk.org/index.php?topic=583.0

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December 03, 2010, 06:27:28 AM
 #18

Intrinsic value is required for money to arise in a barter economy.

Once we get beyond that, we can now bootstrap a currency like bitcoin.

Now we have information by which we can perform economic calculation.

The introduction of money into a barter economy only serves as a 'unknown third party' barter, it doesn't otherwise alter the basis of the exchange.  I don't otherwise understand your statement.  What have we 'gotten beyond' in order to bootstrap, and why is it a prerequisite?

http://bitcointalk.org/index.php?topic=583.0

That's not an answer.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 03, 2010, 06:34:25 AM
 #19


That's not an answer.

Fair enough. Let me try an answer.

Mises' Regression Theorem shows us how money's value is established.

The reason why gold arise as the money of choice is because it is a useful commodity under barter(intrinsic value). In other words, gold got its start because it is valuable in an a barter economy, not because it was a good medium of exchange. That come later.

Does bitcoin have any value in a barter economy? Nope.

But if you can exchange bitcoin in term of gold, than you seed a way for price estimation.

Thus...

Sheeps -> Gold -> paper money -> unbacked FR notes -> Bitcoins. <- Gold again.

IF our economy were to crash and the bitcoin network is wiped out, we have to start with gold again before we can start using bitcoins.

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December 03, 2010, 06:57:08 AM
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That's not an answer.

Fair enough. Let me try an answer.

Mises' Regression Theorem shows us how money's value is established.

The reason why gold arise as the money of choice is because it is a useful commodity under barter(intrinsic value). In other words, gold got its start because it is valuable in an a barter economy, not because it was a good medium of exchange. That come later.

Does bitcoin have any value in a barter economy? Nope.

But if you can exchange bitcoin in term of gold, than you seed a way for price estimation.

Thus...

Sheeps -> Gold -> paper money -> unbacked FR notes -> Bitcoins. <- Gold again.

IF our economy were to crash and the bitcoin network is wiped out, we have to start with gold again before we can start using bitcoins.

Okay, I understand your point, and agree.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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