Money as Debt Society vs Money as Value Society

[Inedible]

On these forums, there's much debate about gold backed currencies vs fiat backed currencies.

I'm a believer that you should only spend what you have so instinctively, I'm in the gold backed currency camp, however, I'm as yet unsure what is better for society.

Sure, gold backed currencies might be more fiscally responsible but would we have a society much less developed/advanced as we have today were we still stuck on the gold standard?

Which is better, to have a solvent world with half the population and technology of the 70s or today's world with defaults happening left and right?*

If we were each in charge of a world, which world would you prefer?





*Figures plucked from my proverbial and are used as an illustration only. Please do not base your world economy on them as I take no responsibility for the final outcome. Past performance is not an indicator of future performance. Your house is at risk if you do not maintain payments. Terms and conditions apply. See reverse for details.

[1714169614]

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[1714169614]

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[LightRider]

I would encourage the implementation of a resource based economy, in which we no longer subscribe to the notion of monetary value, but instead recognize that we can only utilize the resources, knowledge, skill and technology we have available to us. The distorted values that arise from the ultimately rigged monetary game, and the institutions that arise from it, are a detriment to all human life, and the entire biosphere of this planet. If we held values and beliefs consistent with the ordered and coherent physical laws of the universe, we would be much better off as a species.

[SeanArce]

Be careful not to dismiss the reality of the digital age. Gold is obsolete IMO. Crypto is in for the fact that competing currencies can instantaneously override the currency monopoly. Gold is heavy, doesn't communicate well, requires constant guard. It just looks aesthetics. I'm not dismissing golds value as its scarcity is what make people want it, it's just that technology has taken over all aspects of our lives, and that includes currency

[PerfectAgent]

Be careful not to dismiss the reality of the digital age. Gold is obsolete IMO. Crypto is in for the fact that competing currencies can instantaneously override the currency monopoly. Gold is heavy, doesn't communicate well, requires constant guard. It just looks aesthetics. I'm not dismissing golds value as its scarcity is what make people want it, it's just that technology has taken over all aspects of our lives, and that includes currency

So gold 2.0!

[SeanArce]

Be careful not to dismiss the reality of the digital age. Gold is obsolete IMO. Crypto is in for the fact that competing currencies can instantaneously override the currency monopoly. Gold is heavy, doesn't communicate well, requires constant guard. It just looks aesthetics. I'm not dismissing golds value as its scarcity is what make people want it, it's just that technology has taken over all aspects of our lives, and that includes currency

So gold 2.0!

And crypto was born

[acoindr]

... were we still stuck on the gold standard?

I cringed reading that. You say "stuck" like it's a bad thing when in fact it's exactly what we want.

The Founding Fathers of America were surprisingly knowledgeable about money. They understood a gold standard was what was best for the people which is why they enshrined it in the U.S. Constitution.

Let me explain it this way. Imagine two separate games of Monopoly. In one the participants are all equal. The "Bank" of money is at the side where everyone can see it and be sure nobody playing has unfair access to it. This game should be most competitive and fun as all participants are on equal footing. In the other game one player convinces the others he will administer the game so everything goes smoothly, but while also playing himself. He places the Bank behind him where he alone has access to it. With this setup over time what do you think would happen?

It should be obvious the player in the second version is a super player with unfair advantage for controlling game outcome. Yet the second version is exactly the setup we have where the government (in partnership with the Fed) has a monopoly on money. The setup is great for government and banks but ordinary people are not so empowered.

This actually means less innovation not more. Innovation comes from the private sector not government, but our setup has placed more resources with government than the private sector. The people have been robbed, actually, for years now.

Which is better, to have a solvent world with half the population and technology of the 70s or today's world with defaults happening left and right?*

As I said, the people have been robbed. We would be far better off today (with solvency/innovation etc.) having had a true gold standard than we are now.

[johnyj]

If we were each in charge of a world, which world would you prefer?

It's not about now, it is about a long term perspective. The debt based money creation might excel in 50 years, but in the long run it is destined to collapse by the weight of itself

[Bitweasil]

If we were each in charge of a world, which world would you prefer?

I would strongly prefer a gold or other commodity backed currency system with full transparency.  Money systems should not be managed by the men behind the curtain.  I don't trust the government to pull the levers of the money supply, because they have repeatedly demonstrated they are not trustworthy to do so.

The "Guilded Age" was on the gold standard, and was one of the most successful periods of time in terms of generation of actual wealth.  Many other quite successful times have involved the gold standard or similar hard currency standards.  Some have even involved multiple banks with differing currencies - which works just fine, as the banks "keep each other honest" with regards to reserves/etc.

The end of debt backed currencies is collapse, not sustained growth in the real wealth/value of a society.

Money is not value or wealth (it is only a useful representation of such), and anyone who confuses the two and is in power tends to screw things up badly.

[xxjs]

"Money as debt" is a confused concept.

Money is base money plus debt.

Base money is bitcoins, gold, dollar bills and token coins, euro bills and other base fiat.

Base money is not debt.

Debt includes bank accounts.

The difference between debt money and base money is that there is a link of trust between the debtor and the debt holder. The trust can evaporate, and the debt money disappears.

The value of money is the inverse of all prices of goods. It can not be stable. There is no fixed reference.

[Wekkel]

The value of money is the inverse of all prices of goods. It can not be stable.

That's why a policy of aiming at a 'stable price level' is wrong in itself.

[xxjs]

The value of money is the inverse of all prices of goods. It can not be stable.

That's why a policy of aiming at a 'stable price level' is wrong in itself.

Exactly. The most stable situation requires sound money where central banks can not regulate, and a free and unregulated interest market.

[johnyj]

"Money as debt" is a confused concept.

Money is base money plus debt.

Base money is bitcoins, gold, dollar bills and token coins, euro bills and other base fiat.

Base money is not debt.

Base fiat money is debt in today's system, before 1971 it is backed by gold, now it is only backed by debt

When central bank create base money, they buy government bonds, so that government get money to spend. Government must payback the interest and principal of those bonds, so government is debt laiden when they get the money

Since all the newly created money is entering the society through this way, every dollar is backed by corresponding amount of national debt

[xxjs]

"Money as debt" is a confused concept.

Money is base money plus debt.

Base money is bitcoins, gold, dollar bills and token coins, euro bills and other base fiat.

Base money is not debt.

Base fiat money is debt in today's system, before 1971 it is backed by gold, now it is only backed by debt

No. Who is the debtor, who is the creditor? What is the interest rate, and what is the termination date?

When central bank create base money, they buy government bonds, so that government get money to spend. Government must payback the interest and principal of those bonds, so government is debt laiden when they get the money

The Fed does not buy government bonds with base money.

Since all the newly created money is entering the society through this way, every dollar is backed by corresponding amount of national debt

The dollar is unbacked.

[Inedible]

The dollar is unbacked.

It's backed by the American government and population.

[Inedible]

I cringed reading that. You say "stuck" like it's a bad thing when in fact it's exactly what we want.

The Founding Fathers of America were surprisingly knowledgeable about money. They understood a gold standard was what was best for the people which is why they enshrined it in the U.S. Constitution.

Let me explain it this way. Imagine two separate games of Monopoly. In one the participants are all equal. The "Bank" of money is at the side where everyone can see it and be sure nobody playing has unfair access to it. This game should be most competitive and fun as all participants are on equal footing. In the other game one player convinces the others he will administer the game so everything goes smoothly, but while also playing himself. He places the Bank behind him where he alone has access to it. With this setup over time what do you think would happen?

It should be obvious the player in the second version is a super player with unfair advantage for controlling game outcome. Yet the second version is exactly the setup we have where the government (in partnership with the Fed) has a monopoly on money. The setup is great for government and banks but ordinary people are not so empowered.

This actually means less innovation not more. Innovation comes from the private sector not government, but our setup has placed more resources with government than the private sector. The people have been robbed, actually, for years now.

Which is better, to have a solvent world with half the population and technology of the 70s or today's world with defaults happening left and right?*

As I said, the people have been robbed. We would be far better off today (with solvency/innovation etc.) having had a true gold standard than we are now.

Perhaps I was unfairly being negative to the gold standard (completely unintentionally). I didn't mean for it to sound so negative.

I've just been wondering recently if having a larger (and thus more productive) society is a fair cost to having fiat. Sure, better controls to prevent massive fraud and theft would be good.

Wouldn't a society that can expand faster and grow faster be a better one than a smaller although significantly more economically stable society be better?

[semaforo]

If the dollar was backed by gold there wouldve alrwady been a run on it.

[johnyj]

Which is better, to have a solvent world with half the population and technology of the 70s or today's world with defaults happening left and right?*

The point is, gold has value, in a gold standard, in order to expand the money supply, banks must first get gold by providing valuable asset/service in exchange, so it is fair trading

But without the back of gold, banks create money out of nothing, so in principle the new money worth nothing. But in reality they still use these worthless paper to buy valuable things, it means banks unfairly benefited from the people's consensus of money's old value

A common argument is that the resources are wasted in producing gold, but that's exactly why gold has value. If something you can create as much as you want without any effort, then it should have no value

Fiat money still hold their value because people have no other choice, if they have alternative payment medium, then the fiat value will drop quickly because in principle they worth nothing

[Inedible]

The point is, gold has value, in a gold standard, in order to expand the money supply, banks must first get gold by providing valuable asset/service in exchange, so it is fair trading

It's this artificial ability to expand the money supply that allows the fiat economy to grow quicker. Properly managed, could this be beneficial to society?

[xxjs]

The point is, gold has value, in a gold standard, in order to expand the money supply, banks must first get gold by providing valuable asset/service in exchange, so it is fair trading

It's this artificial ability to expand the money supply that allows the fiat economy to grow quicker. Properly managed, could this be beneficial to society?

Thats what the keynesians says.

[Wekkel]

If printing money would bring prosperity, we would not be in a crisis right now.

[Bitweasil]

If printing money would bring prosperity, we would not be in a crisis right now.

What?  Printing money hasn't worked?  What if, and I know this is crazy, but what if we try printing more money?  </Politician>

Sure, gold backed currencies might be more fiscally responsible but would we have a society much less developed/advanced as we have today were we still stuck on the gold standard?

Which is better, to have a solvent world with half the population and technology of the 70s or today's world with defaults happening left and right?*

If we were each in charge of a world, which world would you prefer?

It sounds to me like you're making a fundamental yet very common error.  You appear to be confusing "value" with "money" - and if this is done, it leads to all sorts of weirdness that looks a lot like your question.

Money is not value.  It only represents value.  And, as such, it's representation of value can (and should) be flexible.  To quote Francisco d’Anconia, "Not an ocean of tears not all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow."  Further, the amount of value each unit of currency represents is not fixed, and will vary with time.  We are currently (in most of the world) "used to" inflation, where the value of each unit decreases as more units are printed.  A century or so ago, a dollar was valued at 1/20 of an ounce of gold, so a $20 gold coin was 1oz.  The economy ran just fine on this.  Right now, gold is around $1200/oz, so a dollar is worth 1/60th the value.  The economy still manages to run just fine, but we spend more on things.

If, for some insane reason, the government decided to do a 10:1 split on the dollar (so for each dollar you have, you now have 10), there would be a bit of disruption in the short term, but things would eventually stabilize with prices exactly 10x what they are today.  No new real wealth would have been created, just a massive inflation (or devaluing - more accurate word, but less commonly used) of the currency.

The world ran just fine on the gold standard, and underwent some of the most radical expansions of technology and wealth in society (real wealth, not monetary wealth) with gold.  It even underwent sustained deflation, which was good for some people and bad for others (see http://en.wikipedia.org/wiki/The_Great_Deflation - even as the gold supply increased, the real material wealth increased more, causing deflation).

I don't see any real reason to believe that a gold standard would eliminate innovation and reduce the material wealth of society, because money (be it gold, silver, fiat, etc) is just a representation of that wealth.  The economy would look slightly different as there would be more incentive to save and invest over furiously spending everything you have and beyond, but it would function just fine.

The fundamental problem with fiat currency is that you have to trust the politicians to "pull the levers" properly.  It can be made to work, but it can also be made to seriously enrich the early recipients of the newly created money (usually politicians and their friends) at the cost of the later recipients and everyone else holding currency.  This is all that inflation does - it's a tax on everyone, granted to the recipients of the newly coined money.  And it's stealthy, subtle, and a lot less likely to cause riots than soldiers going around to claim taxes.

If I were put in charge, I would attempt to move to a gold standard or similar.  It is a much more stable economic system without the distortions of money printing making calculations difficult to impossible going forward, and it eliminates the ability of the government to print vast piles of money for their own purposes.  It would certainly be a rough transition, but dramatically shrinking the government is a feature of it, not a flaw, and it should end up as a much more sustainable system that can actually last for a thousand years, instead of the current system we have which will, eventually, end the same as all other debt backed fiat currencies have (in disaster of the hyperinflation variety).  Printing more money will not work forever.  Never has, and it never will.

[semaforo]

  The Gold standard doesn't work because there is not enough gold on the planet to back the volume of the global economy today. The USD has been counting on being "too big to fail" for a long time.

 Enter bitcoin.

[Bitweasil]

  The Gold standard doesn't work because there is not enough gold on the planet to back the volume of the global economy today. The USD has been counting on being "too big to fail" for a long time.

 Enter bitcoin.

Explain this, please.  The amount of value gold represents is very flexible - if the amount of global wealth increases, then each unit of gold simply represents more wealth (so is worth more).

Just as the bitcoin network could run entirely on 1.0 bitcoin with all transactions being tiny fractions of a bitcoin, there's no reason we couldn't run the global economy on 1oz of gold, with transactions taking place in nanograms.  It would be hard to do this physically, but a gold backed currency can still be transacted digitally just as we do with dollars today.

Why do you claim that a fixed amount of gold could not represent the entire world's wealth?

[semaforo]

  It could, if everyone agreed on it. I suppose a collapse of the international financial system could drive the price of gold high enough so that all fiat could be backed with gold. This would be a massive deflationary depression that would make the great depression look like a hiccup.

http://onlygold.com/tutorialpages/All_The_Gold_In_The_World.asp

  This would be fine with me, since I have a position in gold too. Of course, martial law would probably kick in by that time with all gold being confiscated.

[Bitweasil]

"Backing all fiat with gold" is going about things the wrong way.  Just wait for the debt-backed fiat systems to collapse then start over with something clean.  I fully expect that to happen in my lifetime.

[edn247]

The dollar is unbacked.

It's backed by the American government and population.

I was under the impression that the US dollar is quasi backed by oil because of *all* international trade in oil all being done in USD; also one of the underpinning reasons for entering the middle east as Iraq was about to start trading oil for euros.

Around the world the economic expansion that supposedly comes from banks freely creating money is truly tied to energy.  The economic expansion was really made possible by extremely cheap (becoming slightly less so now) energy extraction, and rapid consumption.  Obviously it's not sustainable either and we're running into it (peak oil, expensive tar sand / shale, etc) head on at the same time as the money supply becomes unstable.

Our economy and energy development are tied together so closely that it should be obvious to anyone that we do in fact need to return to something like a gold standard because we should be constrained to a natural growth curve that is of this world for long term sustainability.  Acting like a virus is not ok, this mentality of ever expanding growth must end or humanity will.

[johnyj]

The point is, gold has value, in a gold standard, in order to expand the money supply, banks must first get gold by providing valuable asset/service in exchange, so it is fair trading

It's this artificial ability to expand the money supply that allows the fiat economy to grow quicker. Properly managed, could this be beneficial to society?

The fiat economy did grow quicker, but that has little to do with creating money out of nothing (counterfeiting), more comes from the technology improvement. In fact, it can grow much faster with honest money

True, a growing economy need more money for transaction, but if you are lacking of money for expanding the economy, you should put more effort to mine the gold in order to increase the money supply, that is the honest way to do it, and that will also create a lot of job at mean time

But now, the money creation, a big industry that can provide many jobs disappeared, replaced by a couple of high officials with their printers

Anyway, the strange thing is that people still accept those money created out of nothing, seems they don't care about their real value as long as they could exchange consumable goods. Regarding money, people's behavior is very unconsious, there are a lot more to research in this area

[Inedible]

The point is, gold has value, in a gold standard, in order to expand the money supply, banks must first get gold by providing valuable asset/service in exchange, so it is fair trading

It's this artificial ability to expand the money supply that allows the fiat economy to grow quicker. Properly managed, could this be beneficial to society?

Thats what the keynesians says.

I'm not an economist so I'm not entirely sure what the Keynesians say but are you saying that never can this system work, even with proper and working (if somewhat imaginary in a 'real' world) checks and balances? (I.e. not as it is in the world today).

[Inedible]

If printing money would bring prosperity, we would not be in a crisis right now.

That's not what I said and not the question that was asked.

[Inedible]

It sounds to me like you're making a fundamental yet very common error.  You appear to be confusing "value" with "money" - and if this is done, it leads to all sorts of weirdness that looks a lot like your question.

I'm not sure I am. I think I'm in agreement with a lot of what you say.

Money is not value.  It only represents value.  And, as such, it's representation of value can (and should) be flexible.  To quote Francisco d’Anconia, "Not an ocean of tears not all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow."  Further, the amount of value each unit of currency represents is not fixed, and will vary with time.  We are currently (in most of the world) "used to" inflation, where the value of each unit decreases as more units are printed.  A century or so ago, a dollar was valued at 1/20 of an ounce of gold, so a $20 gold coin was 1oz.  The economy ran just fine on this.  Right now, gold is around $1200/oz, so a dollar is worth 1/60th the value.  The economy still manages to run just fine, but we spend more on things.

If, for some insane reason, the government decided to do a 10:1 split on the dollar (so for each dollar you have, you now have 10), there would be a bit of disruption in the short term, but things would eventually stabilize with prices exactly 10x what they are today.  No new real wealth would have been created, just a massive inflation (or devaluing - more accurate word, but less commonly used) of the currency.

I completely agree with what you say here...

I don't see any real reason to believe that a gold standard would eliminate innovation and reduce the material wealth of society, because money (be it gold, silver, fiat, etc) is just a representation of that wealth.  The economy would look slightly different as there would be more incentive to save and invest over furiously spending everything you have and beyond, but it would function just fine.

The fundamental problem with fiat currency is that you have to trust the politicians to "pull the levers" properly.  It can be made to work, but it can also be made to seriously enrich the early recipients of the newly created money (usually politicians and their friends) at the cost of the later recipients and everyone else holding currency.  This is all that inflation does - it's a tax on everyone, granted to the recipients of the newly coined money.  And it's stealthy, subtle, and a lot less likely to cause riots than soldiers going around to claim taxes.

Right - I'm in agreement with you here but we're getting to the issue now.

If given two planets and the goal is to make a bigger, more productive society and one of the planets is using fiat and the other some resource based standard, which would do better given that the same time limit (say 2000 years - almost half the age of the Earth*)

If I were put in charge, I would attempt to move to a gold standard or similar.  It is a much more stable economic system without the distortions of money printing making calculations difficult to impossible going forward, and it eliminates the ability of the government to print vast piles of money for their own purposes.  It would certainly be a rough transition, but dramatically shrinking the government is a feature of it, not a flaw, and it should end up as a much more sustainable system that can actually last for a thousand years, instead of the current system we have which will, eventually, end the same as all other debt backed fiat currencies have (in disaster of the hyperinflation variety).  Printing more money will not work forever.  Never has, and it never will.

I think we agree here too. Corruption and greed is what's holding the world back. Assuming that it didn't exist or could be properly corrected (not on our planet) could fiat work better?

Perhaps I should develop a game called Sim Currency. You get to build a society based on one or the other options discussed...



*I'm so kidding.

[johnyj]

From certain perspective, mining gold is a waste of resource, but it is some kind of work and it always has some cost related to each ounce of gold mined. Using gold as currency actually ensured some kind of fairness. If you totally remove that cost and create money out of nothing, then there will be a question:

Why everyone else has to work to get money while selected a few could just get money without work?

If you believe that the world should be ruled by selected a few super elites, then you will accept this unfairness, but if you believe that no one on this planet were borned to rule the others, then you might consider using honest money

[LightRider]

From certain perspective, mining gold is a waste of resource, but it is some kind of work and it always has some cost related to each ounce of gold mined. Using gold as currency actually ensured some kind of fairness. If you totally remove that cost and create money out of nothing, then there will be a question:

Why everyone else has to work to get money while selected a few could just get money without work?

If you believe that the world should be ruled by selected a few super elites, then you will accept this unfairness, but if you believe that no one on this planet were borned to rule the others, then you might consider using honest money

Unfortunately there is no such thing as honest money. Money is a tool for manipulation and coercion. It has no other utility. If your goal is honesty, then use the resources available to you. That is the only honest way to run an economy.

[semaforo]

From certain perspective, mining gold is a waste of resource, but it is some kind of work and it always has some cost related to each ounce of gold mined. Using gold as currency actually ensured some kind of fairness. If you totally remove that cost and create money out of nothing, then there will be a question:

Why everyone else has to work to get money while selected a few could just get money without work?

If you believe that the world should be ruled by selected a few super elites, then you will accept this unfairness, but if you believe that no one on this planet were borned to rule the others, then you might consider using honest money

Unfortunately there is no such thing as honest money. Money is a tool for manipulation and coercion. It has no other utility. If your goal is honesty, then use the resources available to you. That is the only honest way to run an economy.

  You could say the same about language.

[LightRider]

From certain perspective, mining gold is a waste of resource, but it is some kind of work and it always has some cost related to each ounce of gold mined. Using gold as currency actually ensured some kind of fairness. If you totally remove that cost and create money out of nothing, then there will be a question:

Why everyone else has to work to get money while selected a few could just get money without work?

If you believe that the world should be ruled by selected a few super elites, then you will accept this unfairness, but if you believe that no one on this planet were borned to rule the others, then you might consider using honest money

Unfortunately there is no such thing as honest money. Money is a tool for manipulation and coercion. It has no other utility. If your goal is honesty, then use the resources available to you. That is the only honest way to run an economy.

  You could say the same about language.

Yes! Money is an idea, a shared fiction! It has no bearing on reality other than what we ascribe to it. So let's not orient our society on an idea subject to the vagaries and flaws of human opinion and instead start relying on the real world and measurable, physical and tangible things!

[semaforo]

Bitcoin is at the core immune - there won't ever be more of them no matter how much people want, and it is based on math which is much more tangible than abstract value based on politics.

[SmileLee]

Bitcoin is at the core immune - there won't ever be more of them no matter how much people want, and it is based on math which is much more tangible than abstract value based on politics.

This is extremely true. However, it could then boil down to how much demand there is for it. There aren't a lot of grandmother's homemade footrests, yet how much demand is there for them? To me they're priceless, since she's been moved into an elderly care facility. But, to anyone else they are just big cans covered in cloth.

[johnyj]

From certain perspective, mining gold is a waste of resource, but it is some kind of work and it always has some cost related to each ounce of gold mined. Using gold as currency actually ensured some kind of fairness. If you totally remove that cost and create money out of nothing, then there will be a question:

Why everyone else has to work to get money while selected a few could just get money without work?

If you believe that the world should be ruled by selected a few super elites, then you will accept this unfairness, but if you believe that no one on this planet were borned to rule the others, then you might consider using honest money

Unfortunately there is no such thing as honest money. Money is a tool for manipulation and coercion. It has no other utility. If your goal is honesty, then use the resources available to you. That is the only honest way to run an economy.

This is a bit conspiracy, I don't think there is someone purposedly manipulate there. Central banks just benefited from an opportunity that most of the people have no knowledge about money creation. It is difficult to imagine that if everyone are aware of this trick and against it, it could bypass the vote

To understand the fiat money creation is not an easy thing, none of my friends/colleagues with university degree in economics could understand it correctly, what they know are unimportant technical details like FRB and money multiplier, m0, m1 definition etc...

[semaforo]

Knowledge is power and the more people understand the financial system the more power it will lose. The Fed is privately owned and finances both Republican and Democrats. This is why RT has more coverage of Ron Paul and bitcoin than all US news networks combined.

[Pumpkin]

Current debt money that's centrally planned by the central banks create massive resource waste: real estate bubble (resulting in empty houses), military, etc etc. Non-debt money like bitcoin would remove such waste.

It can't get worse than it's now. Worth a try!